Fitch Ratings has assigned India-based REC Limited's (BBB-/Stable) proposed senior unsecured notes a rating of 'BBB-'.

The proposed notes will be issued from REC's existing USD7 billion global medium-term note programme. The net proceeds will be used for financing, in whole or in part, eligible green projects, in accordance with the company's green finance framework and the approvals granted by the Reserve of Bank India from time to time and in accordance with ECB guidelines.

Key Rating Drivers

The proposed notes are rated in line with REC's Long-Term Issuer Default Rating (IDR) on the basis that they will be issued under REC's programme and will constitute its direct, unconditional and unsecured obligations and rank pari passu with all its other outstanding unsecured and unsubordinated obligations.

Derivation Summary

Fitch assesses REC under our Government-Related Entities Rating Criteria, factoring in the company's strong linkage with the government and the government's incentive to provide support, with a high overall support score of 50. This results in the equalisation of REC's IDR with that of the Indian sovereign, irrespective of the company's Standalone Credit Profile.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

A positive change to the company's IDR will result in a similar change to the proposed notes.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

Negative rating action on the company's IDR will result in a similar change to the proposed notes.

Best/Worst Case Rating Scenario

International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.

Issuer Profile

REC was established in 1969 and is a non-bank financial company registered with the Reserve Bank of India. It is under the administrative control of the Ministry of Power. REC is responsible for lending to the Indian power sector.

Date of Relevant Committee

17 June 2022

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

Public Ratings with Credit Linkage to other ratings

REC is credit linked to the Indian sovereign (BBB-/Stable).

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