(The following was released by the rating agency)
SINGAPORE (Standard & Poor's) Sept. 24, 2012--Standard & Poor's Ratings Services today assigned its 'BBB-' rating to the proposed issue of benchmark size U.S. dollar-denominated senior unsecured notes due 2022 by India's largest power company, NTPC Ltd. (BBB-/Negative/--).
The proposed issue is the third drawdown under the company's US$2 billion medium-term notes program, which Standard & Poor's has rated 'BBB-'. The rating on the proposed notes is subject to our review of the final issuance documentation. NTPC plans to use the proceeds from the proposed notes to fund its ongoing and new capital expenditure in the power sector.
The rating on NTPC Ltd. reflects the company's dominant market position, cost-competitive operations, strong cash flow measures and liquidity, and a favorable regulatory environment. NTPC's aggressive capital expenditure plans, the weak credit quality of its customers, the country and macroeconomic risk associated with India (BBB-/Negative/A-3), and fuel supply risks offset these strengths.
Our assessment of NTPC's stand-alone credit profile is 'bbb'. The issuer rating is lower than the stand-alone credit profile to reflect our expectation of a potential negative intervention from the Indian government if the sovereign comes under significant fiscal or external stress.
The rating on NTPC also reflects our opinion of a "very high" likelihood of extraordinary government support in the event of financial distress. We believe that the company has a "very strong" link with the government, which owns 84.5% of it, with administrative control by the Ministry of Power. We expect the government to retain its majority shareholding in the company. NTPC's "very important" role for the government reflects the company's public policy role of increasing India's power generation capacity and its dominant position in a power deficit nation.
The negative outlook on NTPC is consistent with that on the sovereign rating on India and reflects the company's sensitivity to government intervention.
We could lower the rating on NTPC if: (1) we lower the sovereign credit rating; (2) ongoing support from the government declines; (3) the company incurs large debt-funded capital expenditure and a weakening in cash flows such that its ratio of adjusted funds from operations to debt falls to 10% on a sustainable basis; or (4) the company's stand-alone credit profile deteriorates substantially, which we consider unlikely in the next 12-18 months.
We could revise the outlook to stable if we revise the sovereign rating outlook to stable.
RELATED CRITERIA AND RESEARCH
-- NTPC Ltd. May 15, 2012
-- Rating Government-Related Entities: Methodology And Assumptions, Dec. 9, 2010
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008