Icra Puts Cesc On Rating Watch

Credit rating agency Icra Ltd today placed the non-convertible debenture (NCD) of CESC Ltd under credit watch with developing implications. The NCDs had enjoyed LBBB+ rating, indicating moderate safety.

Icra said the NCDs were being placed under watch as CESC's cash flow and profitability had been adversely affected following delay in finalising of revised tariffs by the West Bengal Electricity Regulatory Commission (WBERC).

The tariff revision application had been hanging fire for 10 months. The company has asked for 20 per cent rise in tariff and 42 per cent rise in fuel surcharge.

In addition, CESC's project cost for its new Budgebudge plant has been challenged by the West Bengal State Electricity Board (WBSEB) and the litigation was now before the Supreme Court.

 

CESC would have to obtain the court's permission to implement any tariff raise granted by WBERC, leading to further delays.

The delay in deciding on a revision of the power tariff has also hit WBSEB.

The latter was till last week engaged in a dispute with CESC as the latter had failed to pay its monthly power bills to WBSEB as also its past outstandings. In retaliation, the state board had curtailed supply to CESC, leading to power cuts in the CESC area and consequent loss of revenue.

Industry sources said the credit review was expected to take into account factors like the impact on every day's delay in the tariff revision to CESC's financials as well as the minimum tariff revision required to justify retention of the LBBB+ rating.

Extraneous factors may also be taken into account, like the cost of fuel and transmission and distribution losses, as these had also impacted the overall financial health of CESC.

CESC was also in the process of renegotiating some of its loans from financial institutions and banks. The aim of the exercise was to replace high-cost borrowings with lower-cost debt.