WBSETCL outlook stable: India Ratings
Kolkata, Mar 5 : India Ratings has assigned West Bengal State Electricity Transmission Company Limited (WBSETCL) a Long-Term Issuer rating of 'IND A' with Stable Outlook. A list of additional rating actions is provided at the end of this commentary.
Key Rating Drivers
The ratings reflect WBSETCL's monopoly status in its license area, and its high operating efficiencies with a network availability of above 99% over FY09-FY12 and a low transmission loss of around 3%.
The ratings also reflect low business risks in a regulated tariff regime, despite regulatory uncertainty continuing to weigh on certain tariff dues and a time lag in tariff fixation.
The ratings also consider the expected improvement in financials due to the finalisation of multi-year tariff order for FY12-FY14 in December 2012; margin is expected to increase in FY13 leading to an improvement in credit metrics, with net leverage going below 4x and interest coverage above 3x.
Over FY09-FY12, WBSETCL maintained interest cover at around 2.7x, while net leverage ranged between 4.5x-4.8x.
The ratings are, however, constrained by high customer concentration as WBSETCL has a single counterparty, West Bengal State Electricity Distribution Company Limited, which contributes over 90% to its revenue.
Counterparty risk is mitigated by the criticality of WBSETCL's services as well as the relatively smaller size of the payment, as transmission charges are only 5%-6% of the revenue of the distribution company.
Liquidity is also enhanced by a revolving irrevocable letter of credit for an amount equivalent to one-month average billing.
The ratings also factor in the plans for expansion in network capacity, which would be funded to the extent of 70% by debt.
The company also remains vulnerable to a substantial increase in allowable costs which may not be compensated through timely tariff increases beyond FY14.
Rating Sensitivities
Negative: A rating downgrade may result from delays in fixation of tariff beyond FY14 or delays in realisation of receivables from WBSEDCL resulting in deterioration of liquidity and net leverage exceeding 5x.
Positive: Timely fixation of tariff resulting in a sustained improvement in EBITDA margin leading to net leverage below 3.5x may result in a rating upgrade.
WBETCL was incorporated in April 2007, post unbundling of erstwhile West Bengal State Electricity Board (WBSEB) on functional lines in line with the requirement under Electricity Act 2003.
WBSEB has been unbundled into WBETCL and West Bengal State Electricity Distribution Company Limited (WBSEDCL).
WBSETCL is responsible for transmitting power at 400KV, 220KV, 132KV and 66KV throughout West Bengal.
India Ratings has also assigned WBSETCL following ratings:
- INR2,549.5m term loans: Long-Term 'IND A'
- INR2,000m fund-based working capital limits: Long-Term 'IND A'
- INR3,780m bonds programme: Long-Term 'IND A'
- INR3,670m proposed bonds programme: Long-Term 'IND A(exp)'
- INR1,000m commercial paper programme: Short-Term 'IND A1'