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CRISIL ups to A-/P2+ ratings on TCP.

BANKING AND CREDIT NEWS-11 February 2010-CRISIL ups to A-/P2+ ratings on TCP(C)1994-2010 M2 COMMUNICATIONS

11 February 2010 - Indian credit rating agency CRISIL upped to A- from BBB+ and to P2+ from P2 the ratings on the respective long- and short-term bank facilities of local utility and chemical company TCP Ltd.

The agency kept the "stable" outlook on the long-term bank facilities.

The upgrade follows improvement in the company's business and financial risk profiles driven by the successful extension of its power purchase agreement (PPA) with the Tamil Nadu Electricity Board (TNEB) until 2014 and the expected improvement in its capital structure and debt protection measures because of strong profitability. The upgrade also factors in the improving business prospects of TCP's chemical division.

The ratings reflect the company's established presence in the power generation and chemical businesses, its healthy operating capability, and above-average financial risk profile marked by high net worth and above-average debt-protection indicators. These strengths are partially offset by the susceptibility of its operating margin to volatility in raw material prices, especially since the PPA with TNEB does not have a provision for fuel price escalation. The ratings also factor in TCP's exposure to counterparty risk as its entire output is sold to TNEB, susceptibility to cyclicality in the textile sector, and exposure to distressed associate companies.

CRISIL believes that TCP will continue to benefit from its established presence in the power and chemical businesses and increased profitability because of the escalated rates for sale of power to TNEB. The agency may revise the outlook to "positive" if the company reports a significant and sustainable improvement in its profitability on the back of its healthy capital structure, and realises the arrears from TNEB and investments in associate companies. Conversely, it may revise it to "negative" if TCP undertakes a large, debt-funded capital expenditure programme, if its cash accruals decline because of deterioration in revenues and margins or delays in payments by TNEB, or if the company increases its exposure to group entities.

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Publication:M2 Banking & Credit News (BCN)
Date:Feb 11, 2010
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