OREANDA-NEWS. Fitch Ratings has assigned India-based Adani Transmission Limited's (ATL; BBB-/Stable) 4.0% USD500m senior secured notes due 2026 a final rating of 'BBB-'.

The US dollar notes are rated at the same level as ATL's Issuer Default Rating (IDR) as they represent the company's direct, unconditional, unsubordinated and secured obligations. The assignment of the final rating follows a review of the final documentation materially conforming to the draft documentation previously received. The final rating is same as the expected rating assigned on 25 July 2016.

KEY RATING DRIVERS

Supportive Regulatory Framework: ATL's credit profile benefits from a stable and favourable regulatory environment. Revenue from ATL's transmission assets is based on cost-plus tariff, providing long-term cash flow certainty and stability. India's national and state regulators have a long record of delivering predictable outcomes, including tariff formulas. The regulatory framework also provides some protection in recovering dues from weak customers; a problem often faced by Indian transmission companies.

Availability-Linked Revenue Visibility: Transmission companies do not face volume risks, as they are guaranteed revenue by the regulator provided they hit availability benchmarks. The low operating risk profile of transmission assets and ATL's strong operating performance in excess of regulatory benchmarks provides the company with long-term revenue visibility.

ATL's four operating assets are licensed to operate for another 18 to 25 years. Lost revenue upon license expiry is mitigated by the transmission assets' long useful lives and high salvage value. The new concessions are based on a competitive tariff mechanism, which provides less protection compared with concessions under cost-plus tariff model. Fitch expects ATL to maintain its record of bidding prudently for new projects and ensuring adequate returns.

Weak State Counterparties: State-owned power utilities from Maharashtra account for most of ATL's revenue, trade receivables and unbilled debtors. These counterparties are financially weak, although ATL's receivable position has improved following changes implemented by the Maharashtra state electricity regulator in June 2015 to motivate utilities to make punctual payments to transmission companies. Fitch expects ATL's share of revenue exposed to Maharashtra to decline with the commissioning of new projects. However, the company's ratings remain susceptible to sustained deterioration in receivables from Maharashtra utilities.

Adequate Forecast Credit Metrics: ATL's financial profile benefits from stable revenue from its operating transmission assets and will be supported over the medium-term by the successful commissioning of committed greenfield transmission projects. Fitch expects ATL to maintain an adequate financial profile for its ratings over the medium-term after factoring in additional capex. We expect ATL's fixed-charge coverage, defined as funds flow from operations to fixed-charges, to be maintained around 2.3x-2.4x and leverage, defined as gross debt to EBITDA, to trend lower to 3.5x through 2020. Fitch does not expect ATL's gross debt/fixed assets ratio, excluding working capital facilities, to significantly exceed 80% over the medium-term.

Structural Enhancements, Bond Issue: ATL's proposed bonds benefit from structural enhancements achieved through various restrictions, such as limits on incurring additional indebtedness, and features, such as a defined cash waterfall. We note that within the cash waterfall, the reserve accounts now cover three months of interest payments versus three months of interest and principal payments as earlier proposed; however, we do not view this as a material negative factor, given the stable nature of ATL's operations and other structural enhancements present. The notes' obligor group will consist of ATL, the issuing entity and two of ATL's subsidiaries, which own the four operational transmission assets. In addition, the notes indenture includes restrictions on the business activities of ATL's non-obligor subsidiaries and limits total investments to availability of reserves.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for ATL include:

- revenue for operating projects is based on relevant costs, regulated return on equity and incentive income linked to asset availability. Returns for committed projects and uncommitted growth capex, both awarded and those to be awarded under tariff-based competitive bidding, remain broadly in line with existing operational projects

- forecast capex includes five committed projects of about INR32bn under development over the financial year ending-March 2017 (FY17) to FY19 and annual uncommitted capex of INR6.75bn over the medium-term

- minimal dividend payments over the medium-term.

RATING SENSITIVITIES

Negative: Future developments that may, individually or collectively, lead to negative rating action include:

- funds flow from operation fixed-charge cover below 2.2x

- gross debt/EBITDA above 5.5x

- gross debt (excluding working capital facilities)/fixed assets above 80%

- sustained significant increase in receivable days.

Negative rating action on India (BBB-/Stable), particularly India's Country Ceiling (BBB-), will also lead to negative rating action on ATL's Foreign-Currency IDR and notes.

Fitch does not expect positive rating action in the medium-term due to the significant capex ATL is likely to make and believes the company's credit metrics are not likely to improve over this period.