TEXT-Fitch release on Power Finance Corporation Limited

(The following statement was released by the ratings agency)

Oct 20 - Fitch Ratings has today affirmed India-based Power Finance Corporation Limited's (PWFC.BO: Quote, Profile, Research) (PFC) Long-term foreign currency Issuer Default rating (IDR) at 'BBB-' (BBB minus) and its National Long-term rating at 'AAA(ind)'. The Outlook is Stable. At the same time, its National short-term debt rating has been affirmed at 'F1+(ind)'.

"PFC's ratings are equalised with those of the sovereign because of the very strong links between the company and the government. Fitch believes that if the company got into financial distress, there would be a very strong probability of government support," says Salil Garg, Associate Director in the agency's Asia-Pacific Energy & Utilities team. "Fitch considers PFC's role in financing and developing the power sector crucial to achieving the Government of India's (GoI) socio-economic objectives," adds Mr. Garg.

Under the agency's parent-subsidiary methodology, the ratings are based on GoI's majority-ownership of PFC, its strategic importance in channeling government support to the power sector, and the close operational and financial ties between the two. The Stable Outlook reflects GoI's Outlook.

The ratings consider PFC's consistent track record of recovery from borrowers, lower non-performing assets and strong profitability margins (when compared to the overall banking industry in India). Although the financially weak State Power Utilities (SPUs) constitute a major portion of PFC's asset portfolio, the company has been able to keep more than 99% of its asset portfolio in the "performing" category through its prudent management of advances, and through its position as one of two major agencies channeling government subsidies to the power sector.

The SPUs remain dependent on government-sponsored financial institutions for their funding requirements due to the limited resources of the state governments supporting them, and limited access to other sources of commercial funding due to their weak credit profiles. PFC is the largest amongst the non-banking finance companies providing financing to power utilities; the failure of PFC could hinder the funds required for the planned growth and reform of the SPUs.

PFC is a GoI-owned non-banking finance company acting as a financially intermediary for power sector utilities. The state-owned power utilities comprised 77% of its outstanding loans at FYE08. PFC is presently the nodal agency for implementing two key developmental schemes in the power sector sponsored by GoI. At end-FY08 the company had total assets of INR515bn (USD12.9bn) and net income of INR12.1bn (USD302.5m).