Reliance power IPO rated 'above average' by Crisil

New Delhi, Dec 31 (UNI) Rating agency Crisil today rated Anil Ambani group (ADAG) company Reliance Power's upcoming initial public offer 'above average', saying strong demand for power in India will catalyse regulatory facilitation for private participation in the power sector over the medium to long-term.

Securities and Exchange Board of India (SEBI) on Friday cleared the proposed IPO with a rider that the entire promoter quota, that is, 20 per cent of the capital in Reliance Power Ltd will be locked in for a period of five years from the date of allotment in the proposed IPO.

Assigning 'four on five' grading to the IPO, which the ADAG could launch early next year to raise up to three billion dollar from the market, Crisil said. ''This grade indicates that the fundamentals of the issue are above average, in relation to other listed equity securities in India.'' The grading reflects the market rating agency's view that strong demand for power in India will catalyse regulatory facilitation for private participation in the power sector over the medium to long term.

In this scenario, Crisil said, early movers like Reliance Power will benefit from attractive business opportunities that are likely to come if they achieve high levels of financial capability, as is likely for the company after its proposed IPO.

The grading also reflects the ADAG's commitment that Reliance Power will be the sole repository of the group's economic interest in the power generation segment.

Crisil, at the same time, tempered its grading by saying that Reliance Power was likely to face significant implementation challanges as the company was planning to put up capacity, on a scale and within a time frame, never achieved in India before.

SEBI cleared Reliance Power's IPO proposal with a rider of five-year lock-in period on promoters' equity while disposing off a complaint against it, as against the usual lock-in period of three years.

Listing out the eligibility criteria for computation of promoters' contribution, SSBI said, ''The entire promoter quota, that is, 20 per cent of the capital in RPL shall be locked in for a period of five years from the date of allotment in the proposed IPO.'' Crisil's rating also reflects that power generators in India will have to depend on State Elecricity Boards for off-take over the short-to-medium term and that their return will be subject to the regulatory oversight in case of two-part tariff based projects such as Rosa I (600 MW) and Rosa II (300 MW).

Also, returns on the projects won through the competitive bidding route may not be substantially higher due to competition, the rating agency added.

UNI