The credit profiles of Indian power companies, such as NTPC and Adani Electricity Mumbai, will remain largely unaffected despite delay in cash collection due to the coronavirus pandemic, says Fitch Ratings. The ratings of energy companies have benefitted from favourable regulatory frameworks that ensure stable operating profits, said the global rating agency in a recent report.
"We believe any delays in recovering accrued revenue will be recouped with interest costs, in line with slated regulations," Fitch Ratings said in its report.
According to Fitch, the assets of NTPC Limited (BBB-/Stable) and the Adani Electricity Mumbai Limited (AEML) obligor group (US dollar bonds: BBB-) are based on a cost-plus tariff framework. This offers regulatory certainty till March 2024 from the central regulator and till March 2025 under the Maharashtra regulator, when the current five-year tariff period ends.
These arrangements also cover most of Power Grid Corporation of India (POWERGRID, BBB-/Stable) and Adani Transmission Limited's (ATL, BBB-/Stable) projects, it said, adding that the transmission assets of these companies that are not covered by the framework are awarded under tariff-based competitive bidding (TBCB), with prices fixed for a duration of 25 to 30 years.
"There is no price risk in return-based frameworks, so, if there are temporary tariff cuts, losses will be recovered in the next review," the agency said.
The rated power companies' strong operating performance in excess of regulatory benchmarks supports long-term revenue visibility, it added. The power companies will have ready-access to working-capital facilities, supported by their sovereign linkages and regulated contracted asset bases, it added.
Marginal weakening of interest coverage in the financial years ending March 2021 and March 2022, if any, should normalise after the tariff review, Fitch said.
The agency does not anticipate major operating issues during India's pandemic-related lockdown, as electricity supply and coal mining are classified as essential services, it noted.
Fitch, however, said that the companies' cash collection is likely to suffer. "Most of NTPC, POWERGRID and ATL's customers are state-owned power distribution utilities, whose operational and financial profiles will weaken from a drop in electricity demand and payment concessions to end-customers in light of India's lockdown," it said.
In its last report on April 17, Fitch Ratings had said that lower power demand and payment concessions amid a lockdown in India to contain the spread of COVID-19 will increase curtailment risks and extend receivable days for Indian renewable energy producers.