India Ratings and Research placed the BBB rating of bank loans from Tamil Nadu Generation and Distribution Corporation (Tangedco) on Rating Watch Negative (RWN), citing that creditors have taken the National Company Law Tribunal (NCLT) against the company. state electricity regarding the issue of non-payment of contributions.
The RWN says the rating may be upheld or lowered depending on how the issue is resolved, he said. A downgrade can make it difficult for Tangedco to avail of the loans. The rating agency said the development of NCLT could put undue financial pressure on Tangedco.
India Ratings has said it will resolve the RWN, once it gets clarification on the NCLT issue. The BBB rating indicates a moderate degree of security with respect to the timely servicing of financial obligations. The rating is now placed under the RWN outlook, revised from a previous negative outlook.
The loans include long-term loans, cash credit working capital limits and non-funds based working capital limits, and total approximately 31,308 crore.
India Ratings expects Tangedco to continue to witness high leverage and tight liquidity due to the lack of tariff revisions and its continued inability to pass on operating costs. high on the consumer. Tangedco’s net loss widened to 24,125 crore yen in FY20, from 12,623 crore in Fiscal 2019, he added. The rating company said it expects Tangedco’s net loss to remain high in fiscal years 22 to 25. Tangedco would continue to experience significant losses until the difference between the cost of procurement and revenue generation is reduced either through operational efficiency or through tariff revision. He noted that the last tariff revision took place in December 2014. Tariff revisions would be essential to allow Tangedco to start reporting profits, he added.
Total electric utility debt increased to around 1.32 lakh crore in FY21, he said.
The agricultural consumer subsidy accounts for the largest share of the total subsidy, accounting for about 42% of the overall subsidy in fiscal years 20 and 21. This trend is expected to continue, he said. The unsupported rating is based on Tangedco’s stand-alone credit rating, without taking into account the explicit credit enhancement provided by its parent company (the state government).