Highest safety rating to Power Grid bonds

THE INVESTMENT Information and Credit Rating Agency (ICRA) has assigned LAAA rating to the Rs. 1,300 crore long-term bonds programme of Power Grid Corporation of India (PGCIL) indicating highest safety. The rating takes into account PGCIL's status in the Indian power sector as a sovereign owned monopoly responsible for providing long distance high voltage transmission and national grid management. The rating also takes into consideration the weak financial position of most of its customers, namely, State electricity boards (SEBs), proposal of the Government for securitisation of receivables from the SEBs, initiation of reforms in States by setting up State Electricity Regulatory Commissions (SERC's) and fixed transmission tariff structure. For a capital-intensive business such as PGCIL's, its gearing is low which has resulted in comfortable coverage indicators.

Though the competitive bidding route may be adopted in future for evacuation of power from independent power producers (IPPs), PGCIL is expected to remain the monopoly transmission provider for central sector power generation projects. PGCIL's operations are characterised by low business risks because of the fixed transmission tariff structure. The revised tariff structure notified in December 1997. It allows for a 16 per cent return on equity up from 12 per cent earlier and considers actual debt/equity instead of a normative 1:1 earlier. Further the notification allows for an increase in one per cent for every percentage increase in grid availability above a normative 95 per cent. These changes have resulted in improved returns on capital for PGCIL.

The credit quality of the most of the SEBs, which are the sole customers of PGCIL remains an area of concern. Receivables from SEBs have shown an increasing trend over the last five years. The corporation has taken certain steps in the past such as recoveries through irrevocable revolving letter of credit and adjustments from Central Plan Appropriations to recover current and old dues. In 1999-2000 and 2000-01, the corporation on its own initiative has converted receivables from some of the State electricity boards into State government guaranteed bonds. This has also helped PGCIL to reduce its debtors against these SEBs.

Further, the Government, based on the Montek Singh Ahluwalia Committee report is planning to securitise the receivables of the Central Power Sector Companies such as NTPC, PGCIL, NHPC and others to clear outstandings of State electricity boards. This would enable PGCIL to further reduce debtors and improve liquidity.

PGCIL is also aligning commissioning of its projects, which are linked to the commissioning of large hydel and thermal power projects in order to mitigate possible financial loss arising out of idle assets. The initiation of power sector reforms by setting up of SERCs is expected to improve the operations of the State electricity boards, which would in turn improve the receivables position of the Central power sector companies including PGCIL. PGCIL has ventured into telecom sector and has plans to set up 14,000 km of optical fibre backbone at a total cost of Rs. 1,100 crores by utilising its transmission grid. This backbone would be further leased to telecom operators and corporates. Towards this objective, the corporation has commenced work on the telecom project and has started linking the Delhi-Mumbai and ten cities enroute by laying 1,100 km of optical fibre.

Corporate Bureau

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