| Tamil Nadu Generation and Distribution Corporation Limited | ||
| Rating Reaffirmed | ||
| Rating Action | ||
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| 1 crore = 10 million | ||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has reaffirmed the rating at 'CRISIL A(SO)/Negative' on the bond programmes of Tamil Nadu Generation and Distribution Corporation Limited (TANGEDCO). The rating reflects the unconditional and irrevocable guarantee provided by the Government of Tamil Nadu (GoTN), and the trustee-administered payment mechanism for the bonds. The rating on the bonds, therefore, reflects the credit risk profile of GoTN. |
| Analytical Approach |
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The ratings on the NCDs issued by TANGEDCO factors in guarantee extended from the GoTN. |
| Key Rating Drivers & Detailed Description |
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Strengths: * Favourable GSDP composition Tamil Nadu's (TN's) GSDP composition compares favourably with the national gross domestic product (GDP) composition, as well as with the GSDP of other CRISIL-rated states. For fiscal 2018, TN derived 34% and 53% from the secondary and tertiary sectors respectively. With the primary sector accounting for only about 13% of the state's GSDP, which is below the national average of about 15%, TN has relatively lower dependence on agriculture. Further, GST revenue collections have been fairly robust, with minimal/nil compensation received since November 2017 till August 2018. CRISIL believes that a vibrant economy with strong secondary and tertiary sectors results in continuous improvement in a state's revenues. Overdependence on the primary sector usually limits a state's revenue resources unless it has a significant competitive advantage in the sector. * Strong socio-economic indicators TN's socio-economic indicators are superior to the national average and to that of other large CRISIL-rated states. The state's urbanisation, as defined by the percentage of urban population in a state, is at 48% (2011 census), which is higher than the national average of 31%. Its per capita income for fiscal 2018, at current prices was Rs 166,934 which showed a 11% growth from last year, compares well with all India average of Rs 112,835. Its literacy rate of 80% (2011 census) is better than the national average of 74%. Similarly, TN's sex ratio of 995 females per 1000 males (2011 census), is better than the national average of 940 females. Its infant mortality rate reduced to 17 deaths per 1000 births in 2016, against the national average of 34. CRISIL believes that a balanced economic structure with a well-developed demographic profile is a testimony to the state's superior socio-economic infrastructure and augurs well for its future economic growth. Weakness: * Average fiscal position GoTN's financial risk profile has moderated with strain primarily due to widening RD. The RD/revenue receipts (RR) ratio has gradually increased to 12% in fiscal 2018 (Revised Estimates [RE]) from a 1.7% in fiscal 2014 led by subdued excise duty collections, high subsidy outflows and increase in committed expenditure. The continued high deficit and moderately high indebtedness (ratio of total debt and guarantees to GSDP) may adversely impact its fiscal position and constrain its overall credit profile. TN's tax effort, measured by its own tax revenues as a percentage of GSDP has declined to 6.9% in fiscal 2018(RE) from 8.6% in fiscal 2014, mainly on account of the fall in crude oil prices which impacted value-added tax (VAT) collections from petroleum products (as VAT rates are ad valorem). Closure of TASMAC stores (about 500 such stores were closed by the state) moderately impacted tax collections. However, the share of taxes is expected to increase in the medium term owing to better than expected GST collections. Widening RD has impacted the quality of expenditure with capital expenditure getting squeezed. Capital outlay/GSDP fell from 2.0% in fiscal 2014 to 1.5% in fiscal 2018. The GFD/GSDP was 2.8% in fiscal 2018 (RE), which is close to the prudent Fiscal Responsibility and Budget Management (FRBM) limit of 3%. Indebtedness (i.e. debt+guarantee/GSDP) at around 24.5% as of March 31, 2018 (RE) also remains moderately high, close to FRBM threshold of 25%. * High levels of committed expenditure GoTN's expenditure profile carries high levels of committed expenditure, including pension, salary, and interest payments. The state government's expenses on these heads has increased to 58% of its revenue receipts in fiscal 2018 (RE) from 52% in fiscal 2016 and 56% in fiscal 2017, on account of implementation of seventh pay commission. Although the ratio of committed expenditure to revenue receipts has decreased from higher levels in the past (72.6% in fiscal 2010) on account of the increasing trend in revenue receipts, it is still amongst the highest levels across all CRISIL-rated states. CRISIL believes GoTN's high levels of committed expenditure will continue to impact its financial flexibility over the medium term. * Moderate economic management The weak position of the state's power sector moderates its economic management. TANGEDCO's losses continues to increase since fiscal 2016, though lower from earlier levels. TANGEDCO's losses increased to Rs 7,599 crore in fiscal 2018 from Rs 5,787 crore in fiscal 2016 but lower than Rs 12,757 crore in fiscal 2015. Post UDAY implementation, AT&C losses have reduced to 16% in fiscal 2018 from 24.7% in fiscal 2015; but remain much above the targeted levels of 14% for fiscal 2018 and fiscal 2019. The gap between Average Cost of Supply and Average Rate of Realisation (ACS-ARR gap), has increased despite rising subsidies over the years. ACS-ARR was Rs 0.88 per unit in fiscal 2018, higher than Rs 0.77 per unit in fiscal 2017 and Rs 1.50 per unit in fiscal 2015 (as per CRISIL methodology). The state had taken over a part of TANGEDCO's debt under UDAY (Rs. 22,815 crores in fiscal 2017). However, with nil tariff revision since fiscal 2015 and continued losses, external debt has increased to Rs 79,630 crore in FY18 from Rs 65,897 crore in FY17. The state however manages its liquidity well and has not used its Ways and Means Advances since 2004. |
| Liquidity |
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TANGEDCO maintained a cash balance of Rs 1,390 crore as on March 31 2018. But TANGEDCO's liquidity position remains weak on account of continued losses incurred by the company. Support from the State Government in the form of subsidies and access to finance from nonbanking finance companies due to its critical utility role and state government ownership supports its liquidity profile. |
| Outlook: Negative |
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CRISIL believes GoTN's fiscal position may get strained over the medium term. The rating may be downgraded if the RD further widens materially over the medium term, most likely due to weaker control over reducing committed expenditure levels or lower than expected revenue growth. The outlook may be revised to 'Stable' if the own-tax collection increases faster than expected, or expenditure is moderated, most likely by tightening control over subsidies. |
| Key Financial Indicators - Government of Tamil Nadu - (Reported financials) | ||||||||||||||||||||||||||||
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
| Annexure - Details of Instrument(s) | |||||||||||||||||||||||||||||||||||
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
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