Mytrah Energy Ltd. Assigned #B# Rating With Stable Outlook

Stocks and Financial Services Press Releases Friday May 16, 2014 17:21
SINGAPORE--16 May--Standard & Poor's

SINGAPORE (Standard & Poor's) May 16, 2014--Standard & Poor's Ratings Servicesassigned its 'B' long-term corporate credit rating to Guernsey-based MytrahEnergy Ltd. The outlook is stable. Mytrah operates wind power assets in India.

"The rating reflects Mytrah's high leverage, the weak credit quality of someof its customers, and the company's seasonal cash flows," said Standard &Poor's credit analyst Rajiv Vishwanathan. "The strength of Mytrah's regulatedwind power generation business tempers these weaknesses."

The company benefits from preferential dispatch under government policies. Itreceives fixed tariffs with minimal price risk for a bulk of its generation.Mytrah also has long-term offtake agreements with its customers. Moreover, thecompany's marginal cost for generation is low.

Mytrah's "highly leveraged" financial risk profile reflects the company'slarge debt and the highly seasonal nature of its cash flows. Mytrah has beenusing debt to fund capacity expansion since it was established in 2010. Weexpect the company's free operating cash flows to be negative due to

significant capital expenditure, and its debt to increase over the next twoyears.

We expect Mytrah's cash flows to improve with the increase in capacity becauseof the company's short lead time for project construction and its modularnature of rolling out projects. Nevertheless, we expect Mytrah's ratio offunds from operations (FFO) to debt to remain below 9% for at least the next

three years as the company incurs more debt to fund its capital expenditure.

The weak credit quality of some of Mytrah's customers--the state electricityboards in India–-could affect timely recovery of payments, and constrains thecompany's cash flows. Nevertheless, we believe Mytrah's diversified exposureacross electricity boards reduces this risk.

We believe Mytrah has an "adequate" regulatory advantage for the bulk of itswind power generation, which we treat as a regulated business. The company hasminimal exposure to price risk because of fixed tariffs for contracts thataccount for about 80% of revenues. Mytrah's power generation is assured ofpriority dispatch on the grid and the company contributes toward the renewablepurchase obligation (minimum percentage of power has to be purchased fromrenewable sources) of state electricity boards.

We expect Mytrah to maintain its margins at more than 90% because of thecompany's low operating costs and largely stable tariffs over the next 12-24months. Mytrah's wind farms are modular and reduce the risk of largedisruption in cash flows. However, the company has a small size and a shortrecord of operations compared with global wind power companies. Mytrah aims toadd significant new capacity of about 1200 megawatt over the next five years,subject to the availability of cash flows and additional funding. Policychanges in the sector or a reduction in wind tariffs in the medium to long

term could therefore affect Mytrah's incremental revenue from future projects.

"The stable outlook reflects Mytrah's priority dispatch position, cash flowsfrom operational wind farms, and our expectation that the regulatory frameworkwill remain supportive for wind power in India over the next 12 months," saidMr. Vishwanathan. "However, the company's significant expansion plans and highleverage will continue to constrain its financial risk profile."

We could lower the rating on Mytrah if: (1) the company's capital expenditureinvolves greater execution risks than we expect, including significant costoverruns or delays in project completion; (2) the company's operationalefficiency weakens with lower plant load factors than our expectation, whichweaken its EBITDA interest coverage to less than 1.4x on a sustained basis; or(3) the company's liquidity weakens in the event that its cash flows areutilized without leaving adequate reserves to meet upcoming debt servicingneeds.

We see limited upside to the rating on Mytrah over the next 12-24 monthsbecause we expect the company's financial risk profile to remain "highlyleveraged" over the period. We could raise the rating if Mytrah's businessrisk profile improves significantly and margins remain high. This could occur

with greater diversification in the asset base, strong operations, and trackrecord of timely recoveries from customers.

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