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Fitch Ratings: APAC thermal power project ratings unaffected by coronavirus

(27 Mar 2020)

Fitch Ratings does not expect the coronavirus pandemic to result in immediate rating actions on rated notes issued by APAC thermal power projects, it said in a statement issued on Friday.

According to Fitch these projects benefit from take-or-pay obligations under the long-term power purchase agreements, which insulate them from price volatility and demand shocks. A slowdown in economic activities due to the pandemic will soften power demand but will not affect the capacity charges or fixed charges that these projects receive. These charges are the key sources of cash that the projects use to service debt, as the payment is based on the availability of the power station regardless the dispatch. 

In India it has rated Lalitpur Power Generation Company Ltd’s senior secured note under the thermal power project rating criteria. It is rated 'BB+(EXP)' with Stable Outlook. Other power plants, not rated by Fitch, that have signed similar power purchase agreements with utilities also remain relatively unaffected.  

All these projects source coals from domestic mines. Fitch expects the governments to ensure mining activities are not disrupted by the outbreak to continue the domestic supply of coal, which is important to electricity generation. 

Coal inventory is also sufficient. Fitch also believes these issuers have robust spare-part management to ensure adequate stocks and have the ability to reschedule maintenance if necessary. In addition, these plants have been in talks with their offtakers and regulators on preventive measures and emergency plans in response to the coronavirus outbreak.  

All the power stations have invoked their business continuity plans and implemented pandemic prevention procedures, which include restricting site access to essential personnel, isolating on-site crew, separating teams into two or more groups for backup, and restricting employees' use of public transport. 

Fitch does not currently see any threat to these projects' ability to service their debt. All the notes and loans are fully amortising, which removes refinancing risk. The notes pay fixed-rate interest and have project finance-style features, such as debt servicing and maintenance reserves, currency hedging, and other structural enhancements, which mitigate potential cash flow volatility. 

Although we expect these projects to continue to perform as anticipated, downgrades in the ratings of their counterparties or their respective sovereign's Country Ceilings could prompt rating action, depending on whether the resulting ratings on counterparties and Country Ceilings constrain the notes' ratings.


News Source : Times of India