The international rating outfit, however, has reaffirmed the `B+' rating on the private utility. Downgrading the company, the agency said Tata Power's cash flows and liquidity improvement are likely to delayed.

"We revised the outlook to stable from positive to reflect the likelihood that Tata Power's cash flows and liquidity will improve slower than we earlier expected," said S&P credit analyst Mehul Sukkawala.

The Tata Group promoted utility had sold 30 per cent of its stake in the Arutmin coal mine in Indonesia for USD 500 million last fiscal. But the proceeds are yet to come into the TPC books due to cash crunch at the buyer's end.

However, he said the agency is "affirming its 'B+' long-term corporate credit rating on Tata Power and 'B+' long-term issue rating on its senior unsecured notes."

The stable outlook reflects the agency's expectation that cash flows from Tata Power's regulated business and its lower capital expenditure will offset uncertainty over the Mundra project and the coal business over the next 12 months, he added.

The Central Electricity Regulatory Commission had in February 2014 approved a higher tariff for power from the Mundra plant to compensate TPC for an increase in coal costs.

The regulator had also allowed a fuel-cost pass-through mechanism for power supplied from the project in Gujarat. But the decision has been challenged in courts by discoms (distribution companies), causing a delay in tariff increase.

"We expect Tata Power to restrict capital expenditure to regulated businesses and defer all discretionary or new project related work to keep its debt under check.

"Therefore, we expect Tata Power's ratio of funds from operations to total debt to be 10-14 percent over the next two years, consistent with an "aggressive" financial risk profile," said Sukkawala.

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