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Crisil assigns AAA rating to REC

Written by: Staff

Mumbai, Apr 24 (UNI) India's premier ratings agency, Crisil, has assigned a ''AAA'' rating to Rural Electrification Corporation's (REC) Rs 120 billion bond programme, stated a press release issued here today.

Besides, it has reaffirmed its ''AAA/stable'' ratings to REC's Rs 110-billion bond programme, Rs 90-billion non-convertible debenture programme, Rs 2.25-billion tax-free bond programme, Rs 2.75-billion taxable bond programme and Rs 6-billion short-term debt programme.

Other ''AAA/stable'' reaffirmations relate to REC's Rs 44-billion, Rs 8-billion, Rs 34-billion, Rs 15-billion, Rs 20-billion and Rs 15-billion bond programmes.

''The ratings on REC's instruments continue to derive strength from its ownership by the Union government and its strategic role in rural electrification,'' said the release adding, ''REC is important to the Centre since it plays a developmental role as the, nodal agency for channelling finance to meet Union government's social and economic objectives of achieving 100 per cent rural electrification by 2012.'' This, together with the 100 per cent ownership by Union government implies a strong imperative for Union government to continue to support REC and provide distress support as well, should the need arise, pointed out the release.

These rating strengths are however tempered by the weak financial position of the State Electricity Boards (SEBs) which comprise REC's main customers and the expected pressure on its profitability and stand-alone credit profile due to rising resource costs and increasing competition from banks, cautions Crisil.

However, according to Crisil, REC's standalone credit profile is supported by its good resource profile and the corporation's capitalisation levels are adequate, relative to its business risk levels (reasonable Tier 1 capital adequacy ratio of 17.2 per cent and sizable Tier 1 capital base of Rs 37.8 billion as on March 31, 2005).

On REC's future outlook, the release stated that Crisil expects REC's credit profile to remain strong due to continued funding support and assistance in asset quality protection provided by Union government given the importance of REC to GoI owing to its developmental role of channelling finance for rural electrification.

The institution has now been allowed to finance power projects for purposes other than rural electrification as well, stated the release, pointing out that ''this expands its scope as it can finance generation projects, including independent power projects (IPPs).'' REC had total assets of Rs 247.1 billion and a profit after tax (PAT) of Rs 8 billion on a total income of Rs 23 billion (including settlement of over-dues) in FY 05 while for the nine months ended December 31, 2005, REC reported a total income and PAT of Rs 16.7 billion and Rs 5.2 billion respectively as against a total income and PAT of Rs 18 billion and Rs 6.7 billion respectively for the corresponding period in the previous year.


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