Moody's Investors Service, ("Moody's") has assigned a Baa3 rating to Rural Electrification Corporation Limited's (REC) proposed senior unsecured notes, issued under its US$3 billion medium term note program.
The bonds will have a maturity of ten years and will be listed on the Singapore Exchange Securities Trading Limited (SGX-ST) and the International Securities Market (ISM) of the London Stock Exchange.
The rating outlook is stable.
The senior debt rating is subject to receipt of final documentation, the terms and conditions of which are not expected to change in any material way from the draft documents reviewed by Moody's.
Rural Electrification Corporation Limited (REC) Baa3 foreign-currency issuer rating takes into consideration (1) its Baseline Credit Assessment (BCA) of ba3 under our Finance Companies rating methodology; and (2) our assessment of the strong link between REC and the Government of India (Baa2 Stable).
The standalone strength of REC is supported by its operating track record and its status as the preferred lender to state-run power utilities, its captive franchise in the financing of rural electrification projects, as well as power transmission, distribution and generation.
In addition, REC's foreign-currency issuer rating of Baa3 incorporates three notches of government support from the Indian government, given (1) the government's 58.32% ownership in the company, (2) the government's representation on the company's board, (3) the firm's classification as a public sector undertaking; and (4) the strategic role it plays in the government's plans for the power sector.
WHAT COULD CHANGE THE RATINGS-UP
REC's issuer rating could be upgraded if there is a material improvement in the company's financial metrics, including its liquidity profile, as well as the operating environment in the power sector.
WHAT COULD CHANGE THE RATINGS- DOWN
The rating could face negative pressure if (1) the financial strength of state-run power utilities deteriorates significantly; (2) the proportion of secured versus unsecured borrowings increases (while this metric has been declining, it is still high on an absolute basis); (3) the asset-liability mismatch deteriorates; (4) there is any indication of changes in the company's exclusive focus on financing the power sector, which could imply a reduced policy role; and (5) asset-quality problems in the company's loans to the private sector exacerbate.
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