S&P revises Tata Power outlook to positive

MUMBAI - Standard & Poor's Ratings Services has revised its outlook on the corporate credit ratings on Tata Power Co. Ltd to positive from stable. It has also affirmed its 'BB-' corporate credit rating and long-term senior unsecured debt rating.

S&P has revised the outlook to reflect the significant progress made by Tata Power on its two key projects, 4,000 MW Mundra project and 1,050 MW Maithon project, and the strengthening of its business position.

"Both projects are currently running ahead of schedule and within estimated costs," said S&P���s credit analyst Yasmin Wirjawan. "This reflects Tata Power's good project management skills, which benefit from the company's long track record of operating in India."

The rating factors S&P���s expectation of the significant capital expenditure for these two projects and the Mumbai License Area weakening the company's financial metrics. This is expected to result in negative free operating cash flows rising above Rs 60 billion and funds from operations (FFO) to total debt falling to about 10% for the next two years.

However, it believes the cash flows and financial metrics would recover once the project starts gradually coming onstream with the first 525 MW unit of the Maithon project expected to start by end-2010 and the first 800 MW of the Mundra project expected to start in first-half 2011.

The rating on Tata Power could be raised if the company completes the Maithon project on schedule and ensures no slippages on the progress with the Mundra project. Also, this is assuming that the company does not undertake any new capital expenditure plan that involves significant cash outlay in the next 18-24 months or a large debt-financed acquisition, the rating agency said.

The outlook could be revised to stable if the company's cash flow protection measures are not expected to improve after fiscal 2011.