Fitch revises outlook on Jaiprakash Hydro-Power to positive

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Fitch revises outlook on Jaiprakash Hydro-Power to positive

Fitch revises outlook on Jaiprakash Hydro-Power Limited to positive; Affirms rating

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Fitch Ratings today revised the Outlook on Jaiprakash Hydro-Power Limited's ("JHPL") rating to Positive from Stable. At the same time, the agency affirmed JHPL's National Long-term Issuer rating and its INR1.74 billion long-term non-convertible debenture programme at 'A-(ind)' (A minus(ind)).

The Positive Outlook reflects the upward momentum of the rating given the stability of JHPL's cash flows and the reduction in its debt levels. The revision also takes into account the low demand risk for power in north India as well as the reasonably high wholesale power rates, which are expected to remain buoyant at least until 2009. The agency also notes that the company's debt levels have been declining from their peak in FY05 and as it is a recently commissioned single-project hydro company, its financial metrics are expected to strengthen within the universe of Fitch rated 'A(ind)' category corporates. The agency notes that the company is planning to invest in a transmission project in a joint-venture with Powergrid Corporation of India ("PGCIL"), a central transmission utility owned by the Government of India. This investment will be via a special purpose vehicle ("SPV"). Fitch will assess the funding pattern of the equity investments by JHPL in the SPV, and also the recourse it provides to the debt raised by SPV, if any, before it revises JHPL's rating.

JHPL's ratings are also supported by low operational risks given the run-of-the-river (based on river flow) nature of operations of its hydro plant and its ability to service high demand. The ratings also take into account zero fuel risks, which coupled with reducing debt levels, would strengthen the price competitiveness of power produced by JHPL. Customer concentration and credit risk are to some extent mitigated by JHPL's operations in a manner similar to a merchant power plant wherein the power produced by JHPL is sold, by Himachal Pradesh State Electricity Board with which it has a 40-year Power Purchase Agreement, to utilities in north India, typically on prices that are reset yearly.

JHPL's rating is constrained by the single asset nature of the company and uncertainty on tariff determination by the independent regulator, Himachal Pradesh Electricity Regulatory Commission

JHPL is a single project company operating a 300MW run-of-the-river hydropower plant in Kinnaur district in the northern India state of Himachal Pradesh. In the fiscal year ending 31 March 2006 ("FY06"), JHPL had revenues of INR2.7bn, Operating EBITDAR of INR2.5bn and FFO Adjusted Net Leverage of 3.8x.

Sourced From: Fitch Ratings