| The Tata Power Company Limited | ||||||||||||
| 'CRISIL AA/Stable' assigned to Non Convertible Debentures; Subordinated NCD Withdrawn | ||||||||||||
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| 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 |
Detailed Rationale CRISIL Ratings has assigned its 'CRISIL AA/Stable' rating to the proposed non-convertible debentures of The Tata Power Company Limited (Tata Power) and has reaffirmed its 'CRISIL AA/Stable/CRISIL A1+' ratings on the bank facilities and existing debt instruments. CRISIL Ratings has withdrawn its ratings on Rs 1500 Cr of Subordinated Non convertible debentures and Rs. 16 Cr of Non convertible debentures as the same were redeemed. The withdrawal is in line with CRISIL Rating’s withdrawal policy (See Annexure 'Details of rating withdrawn' for details). CRISIL Ratings has received independent confirmation that these instruments are fully redeemed.
The ratings continue to reflect Tata Power's stable cash accrual from the regulated businesses, which account for about 40-45% of total EBITDA; the diversified business risk profile and strong financial flexibility, being a part of the Tata group. These strengths are partially offset by losses in CGPL on account of unviable project economics, and moderate debt protection metrics.
Merger of CGPL with Tata Power has been completed post receipt of NCLT approval order dated 31st March 2022.
On announcement made in April, 2022 to reorganize TPCL’s renewable business under TPREL and investment by Blackrock Real Assets, the first tranche of investment of Rs 2,000 crore was received in August 2022 with dilution of ~5% minority stake in TPREL, following which most of the structural changes were incorporated. TPREL, therefore, is now the holding company for all the renewables businesses of TPCL, including engineering, procurement and construction; electric vehicles; solar cell and module manufacturing; and renewable generation. However, TPCL continues to be the holding company of TPREL.
CRISIL Ratings believes that the group’s debt protection metrics will remain comfortable, with adjusted net debt to earnings before interest, tax, depreciation and amortization (EBITDA) ratio at 3.5x-3.8x over the next couple of years. CRISIL Ratings also notes the management’s intent to reduce adjusted net debt to EBITDA ratio sustainably below 3.5 times over the medium term.
Adjusted EBITDA (as per reported financials) for fiscal 2022 has increased by more than 10% on-year led by improved performance from the regulated businesses, solar EPC business and coal companies, which have compensated for the operating losses of Coastal Gujarat Power Ltd.
Operating profitability remains strong for the renewable businesses driven by commissioning of new renewable capacities. Healthy operational performance above normative levels continue across regulated generation and distribution businesses. Higher international coal prices has led to increased fuel cost under-recoveries at CGPL but offset by higher profitability from coal companies. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has used a combination of full and proportionate consolidation of Tata Power's companies.
CRISIL Ratings has fully consolidated the subsidiaries of Tata Power because these entities form a core of the company’s business risk profile. These include Tata Power's Delhi Distribution Company Ltd (rated ‘CRISIL A1+’); Maithon Power Ltd (MPL; rated ‘CRISIL AA/Stable/CRISIL A1+’); Tata Power Renewable Energy Ltd (TPREL; rated ‘CRISIL AA/Stable/CRISIL A1+’) and Walwhan Renewable Energy Ltd (WREL; rated ‘CRISIL AA/Stable’); Tata Power Solar Systems Limited (TPSSL; rated ‘CRISIL AA/Stable/CRISIL A1+’), Powerlinks Transmission Ltd (CRISIL AAA/Stable'), Tata Power Trading Company Ltd; Industrial Energy Ltd; and the special-purpose vehicles formed for the acquisition of coal entities in Indonesia, including Bhira Investments, Bhivpuri Investments and Khopoli Investments.
CRISIL Ratings has also proportionately consolidated certain joint ventures and associate companies to the extent of Tata Power’s shareholding in these entities, to reflect support to the extent of its interests in these businesses. These companies include coal-operating entities in Indonesia: 30% in PT Kaltim Prima Coal and 26% in PT Baramulti Suksessarana Tbk.
CRISIL Ratings has treated Tata Power's investment in Prayagraj Power Generation Co Ltd (Prayagraj) as a financial investment, given the minority stake held in the platform company, Resurgent Ventures Power Ventures Pte Ltd (Resurgent).
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:
Tata Power earns over 40-45% of EBITDA from its regulated businesses, such as power generation and distribution in Mumbai, power distribution in New Delhi, the 1,050 megawatt (MW) capacity of MPL, and its transmission businesses. The balance life of the PPA for generation assets, including MPL, CGPL and the renewable portfolio, spans for over more than 15 years, thus offering strong revenue visibility. Distribution licenses for Mumbai and Delhi also extend for another 19 years and 9 years, respectively. The PPA of the power generation business for Mumbai (Trombay assets for around 930 MW) is valid till fiscal 2024, and subject to renewal risk. The proportion of cash flows from the regulated businesses could increase over the medium term, driven by the company's focus on adding new licenses in the distribution sector, coupled with regulated capex in its existing generation, transmission and distribution assets.
Tata Power had around 12.01 gigawatt (GW) capacity as on September 30, 2022 (excluding 1,980 MW of Prayagraj Power Generation Co Ltd), including its thermal and clean energy generation businesses, which include around 3.87 GW of renewable energy capacity through TPREL and WREL. Its presence across the value chain of the power sector (generation, transmission and distribution, power trading, as well as fuel supply [imported coal mining and shipping]) cushions it from project-specific issues and helps achieve operating efficiencies and better working capital management at the group level.
Financial flexibility is strong, characterized by stable cash accrual from the existing businesses and adequate liquidity. Being a part of the Tata group, Tata Power enjoys access to the capital market and the banking system. Tata Sons has a 45.2% shareholding in Tata Power and the latter is recognized as one of the flagship companies.
Weaknesses:
Losses incurred by the Mundra ultra mega power project (UMPP) (“Mundra”) (previously housed under CGPL and merged into Tata Power on March 31, 2022) on account of unviable project economics adversely impact Tata Power's credit risk profile. Mundra’s under-recoveries of fuel cost are primarily on account of the non-escalable variable charges component in the tariff. Mundra has made efforts to improve operating efficiencies and minimize under-recoveries by procuring coal from various sources. Coal mines in Indonesia offer a partial natural hedge to Mundra’s operations. However, dividends from coal mines have been lower than Mundra’s debt-servicing requirements, thereby necessitating support from Tata Power.
EBITDA levels for Mundra slipped to Rs (4.6) billion in fiscal 2022, led by voluntary plant shutdowns, on the back of high HBA coal prices.. However, considering the integrated performance of CGPL and coal companies, EBITDA has grown by about 12% in fiscal 2022 backed by strong FOB revenues and high royalties of the coal business.
Post invocation of Section 11 of the Electricity Act by the Government of India in May 2022 (directing imported coal power plants to operate at full capacity), the plant has begun selling power to Maharashtra and Gujarat. The said arrangement is on full cost pass thru basis, subject to true up. Presently 4 (out of 5 units with installed capacity of 4000 MW) is running in full capacity. Sec 11 arrangement is currently valid up till 31st December 2022.
Mundra is also in advanced stages of finalizing the supplementary PPAs with Gujarat and Maharashtra, which will become the template for other 3 counterparties as well.
With improvement in plant utilization levels and sale of power as per pricing mechanism under Section 11 of the Electricity Act, under-recoveries for Mundra are expected to reduce in fiscal 2023. However, progress in finalization of supplementary PPAs with counterparties will remain a key monitorable going forward.
Tata Power has a moderate capital structure, with consolidated adjusted net debt to EBITDA and gearing of around 3.5 times and 2.11 times, respectively as on March-2022. Gross debt marginally rose to Rs 49,535 crore as on September--2022 from Rs 47,590 crore as on March-2022, led by increased borrowing in renewable businesses, Odisha discoms and Coal SPVs. |
Liquidity: Strong Cash accrual is projected at Rs 4,000-5,000 crore for fiscals 2023 and 2024, respectively, which will largely meet the annual capex requirement of around Rs 5,000-6,000 crore. Debt maturity of around Rs 5,500 crore in fiscal 2023 and Rs 6,500 crore in fiscal 2024 is expected to be largely refinanced given strengths of company’s cash flows. As of September 2022, cash & equivalents stood at around Rs 8,250 crore besides unutilized bank lines of about Rs 3,000 crore. Additionally, need based support from Tata Group bolsters the financial flexibility for Tata Power
Environment, social, and governance (ESG)profile CRISIL Ratings believes that Tata Power’s Environment, Social, and Governance (ESG) profile supports its already strong credit risk profile.
The power sector has a significant impact on the environment owing to higher emissions, water consumption and waste generation. This is because of generation of conventional power involves high dependance on natural resources mainly coal. The sector has social impact due to its nature of operations affecting local community and health hazards involved. Tata Power is focused on mitigating its environmental and social risks.
Key ESG highlights
There is growing importance of ESG among investors and lenders. The commitment of Tata Power to ESG principles will play a key role in enhancing stakeholder confidence, given its high share of market borrowing in its overall debt and access to both domestic and foreign capital markets. |
Outlook: Stable Given the regulated nature of Tata Power's business, the company shall generate healthy cash accrual over the medium term and sustain its credit risk profile. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company Tata Power is India's largest integrated private power utility, with installed generation capacity of 12.0 GW as on September 31, 2022 (excluding 1.98 GW through a platform structure). The company is present across the power business spectrum, from generation (thermal, hydro, solar and wind) to transmission and distribution.
CGPL was formed to implement the Mundra Ultra Mega Power Plant (UMPP), which has five units of 800 MW each. CGPL has been merged with Tata Power post receipt of NCLT approval for the same dated March 31, 2022.
MPL, Tata Power's 74% joint venture with Damodar Valley Corporation, operates the Maithon project, which has two units of 525 MW each.
Powerlinks Transmission Ltd operates a 400-kilovolt transmission line from Bhutan to Delhi.
Tata Power holds 30% and 26% stake in Indonesian coal mining companies, PT Kaltim Prima Coal and PT Baramulti Suksessarana Tbk, respectively. It had signed a definitive agreement to sell 30% stake in Arutmin to the Bakrie family for USD 400 million (around Rs 2,800 crore) of which USD 140 million (around Rs 980 crore) is already realised.
In September 2016, Tata Power and ICICI Venture partnered to launch a power platform (known as Resurgent Power Ventures Pte Ltd [Resurgent]) in Singapore, along with global investors. Resurgent will invest in operational and near-operational thermal, hydro, and transmission assets. In December 2019, Renascent Power Ventures Pvt Ltd, a wholly owned subsidiary of Resurgent, completed the acquisition of 75.01% stake in Prayagraj, which owns and operates a 1,980 MW supercritical power plant in Uttar Pradesh.
Further, transmission assets namely, NRSS XXXVI Transmission Ltd. (total length of 153 kms , spread across Uttrakhand, Rajasthan and Haryana) and South East UP Power Transmission Company Ltd. (total length of ~1500 kms; intra state transmission asset in Uttar Pradesh) were also acquired under the platform in fiscal year 2023, as part of stressed asset resolution process. |
Key Financial Indicators - Tata Power Consolidated (CRISIL Ratings adjusted)
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
# One way interchangeability from FB to NFB * One way interchangeability to LC to the extent of 100% ^Includes bill discounting as a sub limit $ Fungible %yet to be placed
Annexure - Details of Rating withdrawn
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Annexure – List of entities consolidated with Tata Power Company Limited
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 22-Dec-22 in line with the lender-wise facility details as on 07-Jan-22 received from the rated entity.
# One way interchangeability from FB to NFB
* One way interchangeability to LC to the extent of 100%
^Includes bill discounting as a sub limit
$ Fungible
Criteria Details
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