Oil India’s ‘Baa3′ issuer and senior unsecured bond ratings have been verified by Moody’s Investors Service (OIL). However, the rating agency downgraded OIL’s baseline credit assessment (BCA) to ‘Ba1’ from ‘Baa3′ because it expects borrowings to finance the company’s purchase of a 54.2 per cent stake in Numaligarh Refinery (NRL) from BPCL for Rs 8,676 crores to place additional strain on its credit metrics.
According to the department, OIL’s availability will become insufficient as a result of the NRL takeover since a short-term facility partially financed the acquisition.
“The confirmation of OIL’s Baa3 issuer status reflects our anticipation of the strong probability of exceptional assistance from the Indian government, resulting in a one-notch uplift from OIL’s ba1 BCA,” Sweta Patodia, a Moody’s analyst, explained.
According to the rating firm, low oil and gas rates in 2020 have also affected OIL’s credit indicators. OIL’s position as a large integrated oil and gas corporation, its strategic involvement in exploiting oil and gas reserves in northeast India, and the government’s significant impact on the company’s financial and market policies are reflected in Moody’s estimation of high government funding.
OIL currently owns 80.2 per cent of NRL as a result of the latest takeover. The rating agency expects OIL’s leverage to fall to about 16 per cent in FY22, down from 51 per cent in FY20, and well below the 20 per cent to 25 per cent level needed to retain the BCA’s ‘baa3’ rating. “We expect OIL’s credit metrics to remain weak for at least the next 12-18 months as a result of low oil and gas rates, as well as additional borrowings to expand its stake in NRL and finance the Mozambique LNG project,” Patodia said.
The selling of the NRL interest was part of BPCL’s disinvestment strategy. OIL had $3,390 in cash and cash equivalents as of December 31, 2020, relative to $4,300 in debt maturing in the next 12 months.