November 07, 2014 CARE ASSIGNS CARE AA RATING TO NCD ISSUE OF TATA POWER COMPANY LIMITED & REAFFIRMS THE RATING OF OUSTANDING INSTRUMENTS

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1 November 07, 2014 CARE ASSIGNS CARE AA RATING TO NCD ISSUE OF TATA POWER COMPANY LIMITED & REAFFIRMS THE RATING OF OUSTANDING INSTRUMENTS Ratings Facilities Amount (Rs. crore) Ratings 1 Remarks Perpetual Bond 1,500 CARE AA [Double A] Reaffirmed Hybrid Bond 1,500 CARE AA [Double A] Reaffirmed Non Convertible Debenture-I 210 CARE AA [Double A] Reaffirmed Non Convertible Debenture-II 1,500 CARE AA [Double A] Assigned Rating Rationale The rating continues to derive strength from Tata Power Company Limited s (Tata Power) strong position as an integrated power company as reflected by its significant presence in the generation, transmission and distribution space. Its cash flows from core licensed operations are stable due to the regulated nature of the business. Around 50% of Tata Power s generation capacity of 8,613 MW (as on August ) is operated either under cost plus regime or on a captive basis with strong counterparties which translates in stable earnings visibility and limits the risk faced by the company due to volatility in fuel prices. A similar assured return on equity model exists in its transmission and distribution business lending stability to the company s cash flows. The commissioning of the entire capacity of the 1,050 MW Maithon Mega Power Project and 4,000 MW Mundra Ultra Mega Power Project (UMPP) has resulted in significant reduction in project implementation related risks. However the commissioning of Mundra UMPP has led to increased revenue contribution from the non licensed operations wherein the fuel cost is partially pass-through. Alignment of Indonesian coal prices with the international prices due to change in coal export regulations of Indonesia have impacted the Mundra project economics since part of the tariff is non-escalable as per the agreements signed with the offtakers, which has adversely impacted the debt servicing capability of the project on a standalone basis. In view of the losses, CGPL approached Central Electricity Regulatory Commission (CERC) seeking relief. In February 2014, CERC passed an order ruling that the company would be entitled to compensatory tariff based on a formula (indicative compensatory tariff of Rs.0.52/unit) over and above the regular tariff to offset additional fuel costs till the hardship continues on account of increase in coal prices. However, the said order has been challenged before the Appellate Tribunal for Electricity (APTEL) and the hearing has commenced. Timeline of the final decision is critical since a favourable judgment would entail additional cashflows for the company. Tata Power s ownership interest in Indonesian coal entities provides partial hedge, to an extent, in case of adverse fuel price movement. However, the subdued performance of these entities in FY14 (refers to the period April 1 to March 31) due to lower realizations impacted the cash flows from them. To support the cash flows, the company intends to sell a portion of its equity interest in the coal mines in the short - medium term. The company has entered into an agreement to sell its 30% stake in PT Arutmin (Arutmin) in January 2014 for USD 510 mn, as a part of the above plan. The Company also entered into an option agreement to sale its 5% stake in PT Kaltim Prima Coal (KPC) in July 2014 for USD 250 mn. 1 Complete definition of the ratings assigned are available at careratings.com and other CARE publications

2 The consolidated borrowings of Tata Power continued to be high and increased from Rs.39,417 crore as on March 31, 2013 to Rs.41,767 crore as at March 31, 2014 owing to debt taken to fund its projects, support high level of regulatory assets and impact of restatement of foreign currency debt. The overall gearing ratio remained high at 2.73x as at March 31, Regulatory assets (RA) have increased from Rs.7,365 crore as at March 31, 2013 to Rs.7,742 crore as at March 31, Out of the above, Rs.5,146 crore pertained to Delhi distribution business on account of tariffs in the past being insufficient to ensure recovery of the power purchase costs. However, Delhi Electricity Regulatory Commission (DERC) is taking steps towards reducing the accumulation of RA. To strengthen its capital structure, the company raised ~Rs.2,000 crore via rights issue in April Further, stake sale of investment in coal mines is expected to be utilized to reduce debt. The company also has a comfortable liquidity position with significant unused fund based lines. The company also enjoys financial flexibility in terms of substantial investments in certain Tata Group companies which can be used to enhance liquidity, if required. The rating also factors in high financial flexibility enjoyed by virtue of it being part of the Tata group. As at March 31, 2014, around 45% of total consolidated debt was denominated in foreign currency. However, this included loans aggregating approx. Rs.8,900 crore pertaining to debt availed by overseas coal SPVs and coal companies, for which the company enjoys natural hedge against the forex fluctuations. Of the total forex debt, debt aggregating Rs.8,800 crore pertain to Tata Power standalone and CGPL. Forex loan pertaining to CGPL is generally hedged (interest plus principal) over the next 3 to 5 years. This mitigates the exposure to forex fluctuations to a certain extent. Timely realisation of the compensatory tariff for Mundra UMPP, time bound liquidation of regulatory assets and any impact on financial leverage remain the key rating sensitivities. Background Incorporated in 1919, The Tata Power Company Limited (Tata Power) is an integrated power utility company and one of the major companies of the Tata Group. Tata Power is one of the largest private integrated power companies in India with presence across the entire power value chain covering power generation, transmission, distribution and trading and fuel and logistic. On a consolidated basis, as at August 31, 2014, the company had an installed generation capacity of 8,613 MW based on various fuel sources: thermal (7,647 MW), hydroelectric power (447 MW) and other renewable energy (519 MW). Tata Power also has businesses of power transmission and power distribution in Mumbai and power distribution in Delhi{through Tata Power Delhi Distribution Company Limited (TPDDL, in which Tata Power holds 51% stake)}. In addition, Tata Power also has a strategic investment in coal assets through a 30% stake in Indonesian thermal coal companies PT Kaltim Prima Coal and PT Arutmin and 26% stake in PT Baramulti Suksessarana Tbk. The investment is part of Tata Power s strategy to ensure fuel security for its thermal power projects. The company has also set up a joint venture in South Africa called Cennergi with Exxaro to develop projects in South Africa, Botswana and Namibia. During FY14, on a consolidated basis, the company reported PAT of Rs.12 crore on total Operating income of Rs.35,855 crore as against PAT of 123 crore on total Operating income of Rs.33,416 crore for FY13. Analyst Contact Name: Dhaval Patel Tel: dhaval.patel@careratings.com

3 Note: Mr. Vittaldas Leeladhar, Non-Executive Director on the board of Tata Global Beverages Limited (a Tata group company), is one of CARE s Rating Committee Members. To comply with the regulations, the member has not participated in the rating process and in the rating committee meeting. CARE has classified instruments rated by it on the basis of complexity. This classification is available at Investors/market intermediaries/regulators or others are welcome to write to care@careratings.com for any clarifications. Disclaimer: CARE s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments.

4 CONTACT Head Office Mumbai Mr. D.R. Dogra Mr. Rajesh Mokashi Managing Director Dy. Managing Director Mobile: Mobile: Ms. Meenal Sikchi Mr. Ankur Sachdeva Vice President - Bank Loan & Instrument Rating Vice President - Bank Loan & Financial Services Mobile: Mobile: meenal.sikchi@carerating.com ankur.sachdeva@careratings.com CREDIT ANALYSIS & RESEARCH LIMITED Corporate Office: 4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (East), Mumbai Tel: Fax: care@careratings.com Other Office: 503, Kaledonia, Sahar Road, Near Andheri Railway Station, Andheri (E), Mumbai Tel: Fax: AHMEDABAD Mr. Mehul Pandya 32, Titanium, Prahaladnagar Corporate Road, Satellite, Ahmedabad Cell: Tel: mehul.pandya@careratings.com BENGALURU Mr. Dinesh Sharma Unit No , 11th Floor, Prestige Meridian II, No. 30, M.G. Road, Bangalore Cell: Tel: , dinesh.sharma@careratings.com CHANDIGARH Mr. Sajan Goyal 2nd Floor, S.C.O , Sector 34-A, Chandigarh Cell: Tel: / 09 sajan.goyal@careratings.com CHENNAI Mr. V Pradeep Kumar Unit No. O-509/C, Spencer Plaza, 5th Floor, No. 769, Anna Salai, Chennai Cell: Tel: / pradeep.kumar@careratings.com HYDERABAD Mr. Saikat Roy 401, Ashoka Scintilla, , Himayat Nagar, Hyderabad Tel: saikat.roy@careratings.com JAIPUR Mr. Rahul Jain 304, Pashupati Akshat Heights, Plot No. D-91, Madho Singh Road, Near Collectorate Circle, Bani Park, Jaipur Cell: Tel: / 14 rahul.jain@careratings.com KOLKATA Ms. Priti Agarwal 3rd Floor, Prasad Chambers, (Shagun Mall Bldg.) 10A, Shakespeare Sarani, Kolkata Cell: Tel: priti.agarwal@careratings.com NEW DELHI Ms. Swati Agrawal 13th Floor, E-1 Block, Videocon Tower, Jhandewalan Extension, New Delhi Cell: Tel: swati.agrawal@careratings.com PUNE Mr. Rahul Patni 9th Floor, Pride Kumar Senate, Plot No. 970, Bhamburda, Senapati Bapat Road, Shivaji Nagar, Pune Cell: Tel: rahul.patni@careratings.com

5 CIN - L67190MH1993PLC071691