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Moody’s changes rating outlook of seven sovereign-linked infra issuers to negative

FE Bureau
Moody's Investor Service, NHAI, NTPC, NHPC, masala bonds, GAIL, Power Grid Corporation

Moody's Investor Service on Friday changed the ratings outlook of seven sovereign-linked infrastructure issuers, including the National Highways Authority of India (NHAI), NTPC and NHPC, to "negative" from "stable". The change in the ratings outlook of these issuers follows Moody's outlook revision for India's sovereign rating to negative from stable, while affirming a Baa2 rating, on Friday. Industry analysts expect that the change in ratings outlook may increase the credit spread for foreign issuances by these companies.

Moody's on Friday affirmed the Baa2 issuer and foreign currency senior secured rating for NTPC and the (P)Baa2 senior secured medium term note (foreign) program rating, and revised the ratings outlook to negative from stable. For NHPC, the ratings agency affirmed a Baa2 foreign currency issuer rating, while the outlook was revised to negative.

"If these companies are contemplating raising masala bonds or other overseas funding, then they may see some kind of premium increase. Generally, if entities get a negative outlook, investors start discounting down a notch to incorporate a possible downgrade, which would be roughly around 50-75 basis points (bps)," an industry analyst told FE.

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Moody's also changed the ratings outlook for NHAI to negative, while affirming the Baa2 foreign currency issuer rating and (P)Baa2 senior unsecured MTN (domestic) program rating. "We have changed the ratings outlook for NTPC, NHPC and NHAI because these companies’ ratings incorporate our expectation of support from the Indian government. Consequently, if the sovereign rating is downgraded to Baa3 from Baa2, we will downgrade the ratings of these companies accordingly," stated Moody's Investor Service.

The move is expected to adversely impact NHAI's finances, a government official told FE. "It will definitely have an impact, though it is hard to tell how much immediately. NHAI already is facing hardship with its large book balance, meaning it has a significant amount of borrowing. So, the negative ratings outlook may further aggravate issues," said the official requesting anonymity.

The change in the ratings outlook for subsidiaries of Adani Green Energy, including Solar Energy Corporation, is due to the dependence on sovereign-owned entities for over 70% of the off-take from power projects, Moody's said. The ratings agency also revised the ratings outlook to "negative" for some subsidiaries of Adani Transmission because "virtually all of the restricted group's operations are based in India," Moody's added.

Other than these issuers, Moody's revised the ratings outlook of GAIL (India) and Power Grid Corporation because a vast majority of the operations and revenues of both companies are linked to the performance of the Indian economy, the ratings agency said.