Power Grid Corporation of India Limited 'CRISIL AAA/Stable' assigned to Long-Term Borrowing Programme
Rating Action
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. 1 crore = 10 million Refer to annexure for Details of Instruments & Bank Facilities &Short-term debt and commercial paper borrowing will cumulatively not exceed Rs 12,000 crore at any point ^The borrowing programme pertains to fiscal 2024. Utilized to raise bonds under Series LXXIII, LXXIV, LXXV and LXXVI %The borrowing programme pertains to fiscal 2021. Utilized to raise bonds under Series LXVII and LXVIII $The borrowing programme pertains to fiscal 2023. Utilized to raise bonds under Series LXX, LXXI and LXXII #The borrowing programme pertains to fiscal 2022. Utilized to raise bonds under Series LXIX @The borrowing programme pertains to fiscal 2019. Utilized to raise bonds under Series LXII and GOI Fully Serviced Bond. !The borrowing programme pertains to fiscal 2020. Utilized to raise bonds under Series LXIII, LXIV, LXV and LXVI ~The borrowing programme pertains to fiscal 2017. Utilized to raise bonds under Series LIII, LIV, LV, LVI, LVII and LVIII. <The borrowing programme pertains to fiscal 2018. Utilized to raise bonds under Series LIX, LX and LXI. >The borrowing programme pertains to fiscal 2024. Utilized to raise bonds under Series LXXIII, LXXIV, LXXV and LXXVI |
Detailed Rationale CRISIL Ratings has assigned its 'CRISIL AAA/Stable’ rating to the Rs.12,000 crore long-term borrowing programme of Power Grid Corporation of India Limited (PGCIL), and reaffirmed its 'CRISIL AAA/Stable/CRISIL A1+’ ratings on the remaining debt programmes and bank facilities.
The rating on bonds worth Rs 531.56 crore (see ‘Annexure: Details of Rating Withdrawn’) has been withdrawn, as the instruments have been fully redeemed. Rating on bonds worth Rs 308.90 crore has been withdrawn on partial redemption. CRISIL Ratings has received confirmation of redemption from the trustee. Additionally, the rating on unutilised long-term borrowing programme of Rs 1,100 crore pertaining to fiscal 2024 and Rs 2,588 pertaining to fiscal 2023 has been withdrawn at the company’s request. The action is in line with the CRISIL Ratings policy on withdrawal of ratings.
The ratings continue to reflect the strategic importance of PGCIL to the Government of India (GoI) and the company’s strong operating metrics, as seen in line availability continuing to exceed the normative level of 98% and high collection efficiency. Revenue growth should remain steady over the medium term, supported by healthy capitalisation. These strengths are partially offset by the weak credit risk profiles of customers. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of PGCIL and its subsidiaries, as the companies are in the same business and under common management. The company’s strategic importance to the central government has also been factored into the ratings, because of the critical role it plays in interstate power transmission.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Strategic importance to the government The company plays a vital role in the development of India’s power sector. It owns about 85% of the interstate transmission network and carries around 45% of total power generated in the country. Moreover, its strong project-implementation capability helps ensure that projects of strategic importance, with compressed implementation timelines, or involving difficult terrain or other complexities, will continue to be awarded to the company on nomination basis. In the past, the government has extended equity support for capital expenditure (capex) and has also guaranteed loans availed from multilateral lending agencies.
Favourable regulatory framework, ensuring secured and stable cash flow The regulatory framework is structured by the Central Electricity Regulatory Commission (CERC), which helps to generate stable revenue and cash flow. Tariff recovery is linked to transmission network availability maintained by the company and is not impacted by the actual power transmitted through the network that could be extraneous to its control. Also, the tariff structure ensures recovery of all expenses, including debt-servicing charges, and provides for a fixed return on equity (RoE), if the company adheres to operational benchmarks. The tariff structure also ensures recovery of annual obligation for debt contracted to finance capex in transmission projects and funded in a debt-to-equity mix of 70:30. Currently, a large part of the asset base is on the regulated RoE structure, resulting in secured and stable cash flow, mitigating any immediate pressure on profitability from increased participation of private sector players through the competitive bidding route.
Strong operating efficiency, resulting in full recovery of cost Strong operating efficiency has helped surpass operational benchmarks set by CERC—system availability was over 99% in fiscal 2023, against the benchmark of 98%. As per the regulator’s stipulation, this ensured recovery of the entire cost, including debt-servicing charges, and provided for RoE. The regulated tariff structure and superior operating efficiency lend stability to cash flow. As the company owns and manages most of the interregional transmission network, its customer profile is diversified, reducing counterparty concentration risk.
Healthy financial flexibility supported by strong cash accrual Cash accrual of over Rs 20,000 crore per fiscal provides significant flexibility to raise funds despite a leveraged capital structure. Capex intensity has reduced to ~ Rs 10,000 crore over the past two fiscals due to which the overall debt has reduced. Cash accrual is healthy to fund the capex and dividend payments and is backed by a regulated tariff structure, which ensures recovery of all expenses, including repayment of loans, and strong operating efficiency. To fund its projects, the company contracts long-term debt for a tenure of 10 years and more. Debt servicing begins only after new projects become operational and start generating revenue. Furthermore, the tariff structure for the assets won through nomination ensures recovery of the amount of debt repaid as approved by CERC every year.
Weakness: Weak credit risk profiles of customers State power utilities (SPUs), which account for the entire revenue of PGCIL , are the weak link in the value chain from a credit risk profile perspective. The risk is mitigated by a strong collection track record of over 98% in last two fiscals. Furthermore, adequate letters of credit have been opened in favour of the company by SPUs as per the settlement scheme. As the owner of a large interregional transmission network, the company has a diversified customer profile. Furthermore, as per CERC’s regulations, the central transmission utility (CTU) had to carry out billing, collection, and disbursement for all interstate transmission system (ISTS) licensees, based on the point of connection (PoC) methodology of allocation of transmission charges. As the sole collection agency of all ISTS networks in India, the CTU has greater negotiation power with designated ISTS customers. It also has authority to regulate power to defaulting customers as per CERC’s norms, which it could use in exceptional circumstances. PGCIL had been handling the CTU function for the CERC since a decade. From April 2021, the CTU function has been transferred from PGCIL into a new entity, Central Transmission Utility of India Ltd (CTUIL). While CTUIL is currently wholly owned by PGCIL, it is expected to eventually have an independent shareholding under the GoI. The collection efficiency under the PoC mechanism should remain strong going forward. |
Liquidity: Superior Healthy cash accrual of over Rs 20,000 crore per fiscal should be sufficient to cover debt obligation. Liquidity is also supported by cash balance of Rs 7385 crore as on March 31, 2023. Furthermore, the regulated tariff structure for the assets won through nomination ensures recovery of the amount of debt repaid as approved by CERC every year.
Environment, social, and governance (ESG) profile The ESG profile of PGCIL supports its already strong credit risk profile.
The power transmission sector has a moderate impact on the environment owing to risks linked to operations such as energy loss during transmission. Also, due to the nature of operations, the sector affects the local community moderately and has occupational health hazards associated with it. In line with this, PGCIL is focused on mitigating its environmental and social risks to ensure minimal impact.
Key ESG highlights
There is growing importance of ESG among investors and lenders. The commitment of PGCIL to ESG principles will play a key role in enhancing stakeholder confidence, given the high share of market borrowing in its overall debt and access to both domestic and foreign capital markets. |
Outlook: Stable PGCIL should maintain a robust financial risk profile over the medium term, despite the planned debt-funded capex, backed by strong operating efficiency and the regulated tariff regime. The company should also continue to benefit from its strategic importance to India’s power sector, given its role in developing and operating the national power transmission network |
Rating Sensitivity factors Downward factors
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About the Company PGCIL was incorporated in 1989 to set up extra-high voltage alternating current and high-voltage direct current (HVDC) transmission lines. The company moves large blocks of power from the central generating agencies and areas that have surplus power to load centres within and across regions. It is under the administrative control of the Ministry of Power, GoI. The company owns and operates an extensive nationwide network of transmission lines, which mainly comprise 400-kilovolt transmission lines and HVDC transmission systems, carrying more than 45% of the total power generated in India. As on March 31, 2023, it owned and operated a transmission line network of 1,74,113 circuit kilometre and 272 substations, with a transformer capacity of over 4,99,360 megavolt ampere.
For the first nine months of fiscal 2024, on a consolidated basis, net profit was Rs 11,407 crore on operating income of Rs 33,865 crore, against Rs 11,097 crore and Rs 33,318 crore, respectively, of the corresponding period in previous fiscal. |
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Any other information: Not Applicable |
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Annexure - Details of Instrument(s)
^^The borrowing programme pertains to fiscal 2025. ***Short term debt and commercial paper borrowing will cumulatively not exceed Rs 12,000 crore at any point ^^^fund based and non fund based limits are interchangeable
Annexure - Details of Rating Withdrawn
^^The borrowing programme pertains to fiscal 2024. **The borrowing programme pertains to fiscal 2023. *Partial redemption |
Annexure - List of Entities Consolidated
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