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S&P, Fitch assign negative outlook to Power Grid

Last Updated: Friday, January 4, 2013 - 20:06

New Delhi: Two rating agencies Standard & Poor's and Fitch have assigned negative outlook to state-owned transmission utility Power Grid Corporation in line with the sovereign credit rating outlook of the country.

"The negative outlook on Power Grid is consistent with the sovereign credit rating outlook, and reflects Power Grid's sensitivity to government intervention," S&P said Friday.

Fitch Ratings said the government, which has control over management and the appointment of the board, can influence PGCIL's financial and operating decisions.

PGCIL is rated a notch below its standalone credit profile of 'BBB', due to constraint by its 69.4 percent owner, the government, which is on Negative Outlook, Fitch said.

Political considerations will continue to influence the ability and willingness of state-owned electricity boards -- the company's key customers -- to increase tariffs, limiting the improvement in their weak credit profiles, S&P said.

S&P assigned 'BBB-' long-term corporate credit rating to Power Grid Corp of India Ltd (PGCIL), with a negative outlook. It has also assigned 'BBB-' to its proposed issue of up to USD 1 billion unsecured long-dated notes.

PGCIL is strategically important to India given its dominant position in the country's electricity transmission sector. The company accounts for more than 90 percent of India's inter-state and inter-regional transmission systems and over 50 percent of the electricity transmitted in India.

A largely national presence exposes Power Grid to the country and macroeconomic risk of India, S&P said.

The rating agencies are of the opinion that the future development that may trigger a possible downgrade or upgrade of PGCIL's ratings include any negative or positive action of the sovereign credit rating.

"The rating on Power Grid reflects the company's near monopoly inter-state transmission business in India and a stable regulatory framework with a cost plus tariff mechanism on most existing projects," S&P's credit analyst Abhishek Dangra said.

He added: "We also believe there is an extremely high likelihood of extraordinary government support to Power Grid in the event of financial distress. The weak credit quality of the company's customers and the country and macroeconomic risk associated with India offset these strengths."

Shares of Power Grid Corp closed up by 0.61 percent at Rs 114.90 on the BSE Friday.


First Published: Friday, January 4, 2013 - 20:06
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