CRISIL has assigned its bank loan rating of ‘A/Stable’ to the term loan of Transmission Corporation of Andhra Pradesh Ltd (AP Transco), and has reaffirmed its rating on the company’s outstanding bonds at ‘A (so)/Stable’.

The ‘A/Stable’ bank loan rating reflects AP Transco’s monopoly in intra-state transmission of power in Andhra Pradesh (AP). The rating also factors in AP Transco’s stable cash flows on account of its regulated nature and efficient operations. These strengths are partially offset by the company’s moderate financial risk profile, exposure to risks relating to concentration of revenues in off-takers with average credit risk profiles, and large debt-funded capital expenditure plans.

The ‘A(so)/Stable’ rating on the bonds continues to reflect the credit risk profile of the Government of Andhra Pradesh (GoAP), as these bonds are guaranteed by GoAP.

Outlook: Stable (for Rs.20 billion term loan)
UCO Bank’s capital adequacy is likely to face increasing pressure over the medium term, owing to its weakening earnings profile. While the bank plans an FPO in the near future, the timing of the FPO will depend on the revival of the capital markets; the size of the issue is likely to be significantly lower than previously assumed. Factors that can result in a revision in outlook to ‘Stable’ include significant and sustainable improvement in earnings, and increased capitalisation. Conversely, the bank’s inability to maintain its CAR well above the regulatory minimum, or significant deterioration in its asset quality, could drive a downward revision in the rating on these instruments.

Outlook: Stable(For bond issues)
The ‘Stable’ outlook reflects CRISIL’s expectation that GoAP’s economic management measures will continue, with greater control on revenue expenditure. Further, the state’s indebtedness and debt protection measures are expected to remain stable. This will be supported by the state’s economic growth, leading to buoyancy in its own tax revenues.

About AP Transco
As envisioned in the AP Electricity Reform Act, 1998, the AP State Electricity Board was unbundled into two separate companies, Andhra Pradesh Power Generation Corporation Ltd (AP Genco) and AP Transco. These companies commenced business operations as commercial entities in 1999. Under the provisions of the Electricity Act 2003, AP Transco was divested of its bulk supply business in June 2005. All power purchase agreements (PPAs) entered into with AP Transco by the central power utilities, AP Genco, and private generators, were transferred to four discoms. Today, AP Transco is a ‘pure wires’ company in the transmission segment operating at voltage levels of 132 kilo volts (KV) and more, and a system operator, that is, a state load despatch centre (SLDC), in AP. It receives power from generators and transmits it to discoms; its revenues consist of transmission charges and state load despatch charges received from the discoms and other open-access customers (both intra-state and inter-state).

AP Transco reported a net profit of Rs.355.2 million on net sales of Rs.6.72 billion in 2007-08 (refers to financial year, April 1 to March 31), as against a net profit of Rs.270.2 million on net sales of Rs.6.20 billion in 2006-07.