Mytrah Energy Ltd. #B# Rating Affirmed With Stable Proposed Guaranteed Notes Rated #B#

Stocks and Financial Services Press Releases Friday September 26, 2014 17:31
SINGAPORE--26 Sep--Standard & Poor's

SINGAPORE (Standard & Poor's) Sept. 26, 2014--Standard & Poor's Ratings Services today affirmed its 'B' long-term corporate credit rating on Guernsey-based Mytrah Energy Ltd. (Mytrah). The outlook is stable. We also assigned our 'B' long-term issue rating to a proposed issue of senior notes that Mytrah guarantees. The company's wholly owned subsidiary Mytrah Energy (Singapore) Pte. Ltd. will issue the notes. Mytrah operates wind power assets in India.

The rating affirmation reflects our view that Mytrah's revenue growth will continue to be strong over the next two years as the company adds wind power capacity. This will improve Mytrah's financial position, although leverage is likely to remain high over the period. We estimate that Mytrah's revenue will grow 50% or more annually over the next two years. The company commissioned about 200 megawatt (MW) of wind capacity over the past six months, increasing wind capacity to 517 MW.

Mytrah is likely to commission another 32 MW capacity in the next two to three months. At the same time, we expect the company to maintain its high EBITDA margins of about 90% because of its low operating costs. Mytrah's long-term power purchase agreements that have fixed tariffs support its business risk profile, which we assess as "fair." The company also benefits from its diverse customers and the chronic power deficit in India.

Mytrah's exposure to weak state electric utilities and the company's small scale and short track record temper these strengths. "We expect Mytrah's high capital expenditure for expansion over the next two to three years to result in high leverage," said Standard & Poor's credit analyst Mehul Sukkawala. "We believe Mytrah will be exposed to exchange-rate risk if the proposed bond is successful.

This is because the company would have significant foreign currency debt whereas all of its cash flows are denominated in Indian rupee." The bond will be issued by a restricted group comprising the issuing company and five operating subsidiaries of Mytrah. However, we assess the company on a consolidated basis, including the restricted and the unrestricted group. That's because of the restricted group's common management and line of business, importance to Mytrah, and our unfavorable view of the Indian legal environment. "The stable outlook reflects our view that Mytrah will maintain its priority dispatch position in supplying power and the efficiency of operational wind farms. We also expect the company to continue to benefit from a supportive regulatory framework for wind power in India over the next 12 months.

However, Mytrah's significant expansion plans and high leverage will continue to constrain its financial risk profile," Mr. Sukkawala said. We could lower the rating on Mytrah if: (1) the company's capital expenditure involves greater execution risks than we expect, including significant cost overruns or delays in project completion; (2) the company's operational efficiency weakens with lower plant load factors than our expectation, which lowers its EBITDA interest coverage to less than 1.4x on a sustained basis; or (3) the company's liquidity declines in the event that its cash flows are utilized without leaving adequate reserves to meet upcoming debt-servicing needs. We see limited upside to the rating over the next 12-24 months because we expect Mytrah's financial risk profile to remain "highly leveraged" over the period.

We could raise the rating if the company's operating performance improves significantly and margins remain high. This could occur with greater diversification in the asset base, strong operations, and a track record of timely recoveries from customers.

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