India Ratings and Research has placed Tamil Nadu Generation and Distribution Corporation’s (Tangedco)’ bank loans’ BBB rating on Rating Watch Negative (RWN), citing that the creditors have moved the National Company Law Tribunal (NCLT) against the State power utility over the issue of non-payment of dues.
The RWN indicates that the rating may be affirmed or downgraded based upon the resolution of the issue, it said. A downgrade may make it difficult for Tangedco to avail the loans. The ratings agency said the NCLT development could lead to excessive financial stress on the Tangedco.
India Ratings said it will resolve the RWN, once it receives clarity on the NCLT issue. The BBB rating denotes a moderate degree of safety regarding timely servicing of financial obligations. Now the rating is placed under the RWN outlook, revised from an earlier negative outlook.
The loans include long-term loans, cash credit working capital limits and non-fund based working capital limits, and totals to about ₹31,308 crore.
India Ratings expects the Tangedco to continue to witness high leverage and a stressed liquidity position due to the absence of tariff revisions and its sustained inability to pass on the high operating cost to the consumer. Tangedco’s net loss widened to ₹24,125 crore in FY20 from ₹12,623 crore in FY 2019, it added. The ratings firm said it expects Tangedco’s net loss to remain high during FY22-FY25. The Tangedco would continue to witness sharp losses until the gap in the cost of supply and revenue realisation reduces either through operational efficiency or tariff revision. It noted that the last tariff revision took place in December 2014. Tariff revisions would be essential to enable Tangedco to start reporting profits, it added.
The power utility’s total debt increased to about ₹1.32 lakh crore in FY21, it said.
Agricultural consumer subsidy accounts for the largest share of the total subsidy, constituting about 42% of the overall subsidy in FY20 and FY21. This trend is likely to continue, it said. The unsupported rating is based on its standalone credit assessment of Tangedco, without factoring in the explicit credit enhancement provided by its parent (the State Government).