Tata Power is to acquire Welspun Renewables for an enterprise value of Rs 9,249 crore.
Tata Power indicated that it intends to maintain leverage at the current improved levels post-acquisition through strategic measures.
If the acquisition is fully debt-funded, Tata Power's debt will increase by about 25 per cent.
"We believe Tata Power will share further details on its capital structure in due course. Tata Power's operating performance in the fiscal year ended March 2016 was above our expectations," S&P said.
Cash flows were stronger due to stable earnings from the company's regulated distribution business and lower losses in the unregulated Mundra project.
A sharp reduction in coal prices led to lower losses for the Mundra project, where the sale price for the power purchase agreement (PPA) is fixed, S&P noted.
The company's ratio of funds from operations to debt was stronger at about 12 per cent for the fiscal year ended March 2016, against S&P's expectation of about 9 per cent.
"In our view, Tata Power's business position is unlikely to be materially changed after the acquisition. The company will likely emerge as one of the larger renewable energy players in India but, overall, renewable energy accounts for less than 30 per cent of India's power generation," S&P said in a statement.
"We believe the renewable energy business is a high-growth area in India, given the government's focus on increasing capacities for renewable energy and priority dispatch. However, falling asset prices and competitive bidding for new PPAs can expose renewable energy assets to volatility of returns on investments," it said.
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