Mumbai, Nov. 26: Global credit rating agency Moody’s Investors Service has placed the Ba2 foreign currency debt ratings of Tata Power on review for an upgrade.
The rating action follows Moody’s announcement earlier this month that it had placed India’s foreign currency ceiling on review for an upgrade. The review will focus on the company’s current financial and business position as well as the risks arising from its growth plans.
The credit rating agency explained that Tata Power’s core business is that of the licensee supply of electricity in Mumbai.
“This regulated business is largely monopolistic and benefits from a cost plus tariff structure that also provides for a return on equity. Also, the company has three independent power plants in India,” it pointed out.
Moody’s added that the company is seeking to grow through diversification and earlier this year, it bought into a privatised distribution company in New Delhi.
While Tata Power is looking at similar acquisitions, it has significant expenditure planned in telecommunications, which may not generate material cash flow for a number of years, the rating agency noted.
In this regard, it was of the view that Tata Power’s net debt position will increase as it plans to fund its expansion programmes primarily through liquidation of investments.
However, the company maintained that its planned venture into telecom would not affect its bottomline and that the investments would be made in a way that is profitable and that energy, feedstock, generation, distribution and transmission will remain its core areas of business.