| Coastal Gujarat Power Limited | ||||
| Short-term rating reaffirmed; long-term rating 'CRISIL A/Watch Positive' and withdrawn | ||||
| Rating Action | ||||
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| & Guaranteed by Tata Power | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has withdrawn its ratings on the long-term bank facilities, proposed long-term bank loan facility and Rs 50 crore short-term loan of Coastal Gujarat Power Ltd (CGPL) at the company’s request and on receipt of no-dues certificate from the bankers. The withdrawal is in line with CRISIL Rating’s policy. The 'CRISIL A1+ (CE)’ rating on the short-term bank facilities and commercial paper, backed by an unconditional and irrevocable guarantee from Tata Power, has been reaffirmed.
CGPL has substantially reduced debt to Rs 3800 crore in December 2020 (from Rs 8078 crore in September 2020). Proceeds from preferential allotment by Tata Power to Tata Sons Ltd (rated ‘CRISIL AAA/FAAA/Stable/CRISIL A1+’) and divestment proceeds from Tata Power’s asset sales were utilised to pare down the debt. The proposed merger of CGPL with parent, The Tata Power Company Limited (Tata Power, rated CRISIL AA/Stable/A1+) is on track and shall be completed by the first quarter of fiscal 2022..
The rating continues to reflect the unconditional and irrevocable guarantee from Tata Power. The rating also factors in the payment structure designed to ensure full payment to the lenders by Tata Power within the timelines stipulated; and hence reflects the credit quality of Tata Power. As per the payment structure, Tata Power has undertaken to meet CGPL's debt obligation on or before the due date (for commercial paper) and within 30 days of the due date (for other bank facilities). |
Analytical Approach CRISIL Ratings has applied its criteria for rating instruments backed by guarantees for the bank facilities and commercial paper guaranteed by Tata Power |
Key Rating Drivers & Detailed Description Strengths: * Strength of continuing, unconditional and irrevocable corporate guarantee by Tata Power Working capital facilities worth Rs 2,800 crore, are backed by an unconditional and irrevocable corporate guarantee from Tata Power. The parent should continue to support CGPL for meeting all the debt obligation on time, which continues to be a key rating driver.
The parent has infused funds in CGPL to meet debt obligation and any operational cash gaps. Since the commissioning of the plant, Tata Power has infused around Rs 9,000 crore till March 31, 2020, in the form of perpetual securities, equity and inter-company loans. This is in addition to the initial equity commitment of Rs 4,250 crore towards 25% of the estimated project cost.
Tata Power continues to make efforts to improve operating efficiency and minimise under-recoveries of CGPL through procurement of coal from various sources. The coal mines in Indonesia may continue to provide a natural hedge to CGPL's operations, though this could be muted by their domestic market obligations.
Weaknesses: * Unviable project economics About 55% of the variable charges cannot be escalated in sync with prevailing coal prices. Hence, changes in coal pricing regulations by the Indonesian government contributed to the project's unviability. Nevertheless, the under-recovery of fuel cost reduced to Rs 0.46 per kilowatt hour (kWh) in fiscal 2020 from Rs 0.78 per kWh in fiscal 2019 as international coal prices softened, and has reduced further in fiscal 2021. While coal prices are expected to remain subdued, cash flow shall remain susceptible to fluctuations in coal prices until the HPC recommendations are adopted and losses, though reduced, may continue given the current unviable tariff structure. |
Liquidity: Strong Liquidity should remain healthy over the medium term, driven by funding support from Tata Power to meet financial obligation. On a standalone level, CGPL has been incurring operating losses. The parent will continue to extend timely, need-based funds. |
Rating Sensitivity factors Downward factors
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Adequacy of credit enhancement structure The rating on the buyer's credit, bank guarantee, and short-term bank facilities continues to reflect the unconditional and irrevocable guarantee from Tata Power, and the trustee-administered payment mechanism.
a. For Rs 2,400 crore buyer's credit
b. For Rs 250 crore bank guarantee
*Due date
c. For Rs 150 crore short-term loan
To assess Tata Power, CRISIL has used a combination of full, proportionate, and moderate consolidation of its group companies. The financials of CGPL, including the entire guaranteed debt, are factored in the consolidated financials of Tata Power. CRISIL has also considered multiple scenarios to test the adequacy of the credit enhancement structure, including stress scenarios where the performance of CGPL deteriorates. The instruments should have a high degree of safety regarding timely servicing of financial obligation even in the most likely stress scenario. |
Unsupported ratings: CRISIL A CRISIL has introduced 'CE' suffix for instruments having explicit Credit Enhancement feature in compliance with SEBI's circular dated June 13, 2019 |
Key drivers for unsupported ratings For arriving at the unsupported ratings, CRISIL Ratings has considered the standalone business and financial risk profiles of CGPL. CRISIL Ratings has also factored in the strong financial, managerial and technical support that CGPL is likely to receive from the parent, Tata Power, given that the two companies have extensive business and operational linkages. |
About the Company CGPL, a wholly owned subsidiary of Tata Power, implemented a 4,000 MW ultra-mega power plant in Mundra, Gujarat. The project's original cost of Rs 17,000 crore was funded in a debt-to-equity ratio of 75:25. CGPL has tied up power purchase agreements with state power utilities of Gujarat, Rajasthan, Maharashtra, Punjab and Haryana. The fuel (coal) for the plant is sourced from Indonesia. Tata Power has long-term agreements with Indocoal, a coal trading company sourcing coal from the Indonesian coal mining company, PT Kaltim Prima Coal, for supply of 10-12 MTPA, from which CGPL will get its share. Tata Power holds an effective stake of 30% in the coal mining company. |
About the Guarantor Tata Power is one of India's largest integrated private power utility, with installed generation capacity of around 10.8 GW (as on September 30, 2020). The company is present across the entire power business spectrum, from generation (thermal, hydro, solar, and wind) to transmission and distribution. |
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List of covenants The material covenants of the instruments are as follows:
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
*Guaranteedby TataPower |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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