CARE downgrades GVK Power to 'BBB+'...

 

Credit Analysis & Research (CARE) has downgraded the long-term bank facilities rating of GVK Power & Infrastructure from 'A-' to 'BBB+' aggregating to Rs 4.25 billion.

CARE has also downgraded the long/ short-term bank facilities rating from 'A-/ A2' to 'BBB+/ A3+' aggregating to Rs 1.20 billion (reduced from Rs 2 billion) of the company.

The revision in the ratings of GVK Power and Infrastructure (GVKPIL) takes into consideration deterioration in financial performance of the company during FY13 (FY refers to the period April 1 to March 31) and H1FY14, decline in operating performance of gas based power plants of the group, deterioration in capital structure of the company and delay in execution of projects under implementation in the hydro and thermal energy segments.

The ratings continue to derive strength from the experience of the promoters and management team, track record of successful execution of projects, well-diversified portfolio of assets under operation and development and long term growth prospects for the infrastructure sector.

The ratings, however, continue to be constrained by high investment commitments of subsidiaries and step down subsidiaries, inherent risk associated with development of greenfield infrastructure projects and exposure to the subsidiaries and other group companies in the form of corporate guarantees.

The ability of the company to raise funds in a timely manner, improve capital structure and meet equity commitments of group companies, as per the schedule without any further deterioration in the financial risk profile are the key rating sensitivities.

Shares of the company declined Rs 0.03, or 0.36%, to settle at Rs 8.25. The total volume of shares traded was 1,096,235 at the BSE (Friday).

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Tariff hike alone cannot bail out Discoms: Care report

 

Structural improvements and financial discipline are far more crucial for improving the health of distribution companies than depending on tariff hikes, rating agency Care has said. According to a Care report, which analyzed 30 Discoms in 11 states, a series of tariff hikes had been effected by these companies in the last three years.

 

"Tariff hike alone can't bailout the Discoms given that there are substantial regulatory assets on their balance sheets," Care Rating said in a report.

The report also said that apart from untreated gap which has left tariffs far from being cost reflective, unsustainable levels of cross-subsidization with a slowdown in high paying subsidizing consumers like commercial and industrial sector and emergence of group captive model wheeling away high paying consumers, have further impacted their financial health. The report observed that total power demand has tapered this fiscal so far with a slowdown in growth and delay in restructuring state Discoms.

According to the study, demand for power grew by only 1.7 per cent in September compared to year-ago period, led by off-take back-down by Discoms coupled with continuing load shedding in tier 2-3 cities in northern and southern region.

"For demand to improve, there is a need for companies to go slow on implementing financial restructuring package, buying power from the open market and entering into fresh long-term power purchase arrangements by inviting case-I/II bids," it said.

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