Moody's affirms Oil India's Baa3 ratings, downgrades BCA to ba1
Singapore: Moody's Investors Service on Tuesday affirmed the Baa3 issuer ratings and senior unsecured bond ratings of Oil India Ltd (OIL).
It also affirmed the Baa3 rating on the backed senior unsecured notes issued by Oil India International Pte Ltd and guaranteed by OIL.
At the same time, Moody's downgraded OIL's baseline credit assessment (BCA) to ba1 from baa3. The outlook on all ratings remains negative.
"The downgrade of OIL's BCA is driven by our expectation that the company's credit metrics will remain weakly positioned at least over the next 12 to 18 months driven by low oil and gas prices as well as additional borrowings to increase its stake in Numaligarh Refinery Ltd (NRL) and fund the Mozambique LNG project," said Moody's Analyst Sweta Patodia.
"The affirmation of OIL's Baa3 issuer rating reflects our expectation of the high likelihood of extraordinary support from the Indian government that results in a one-notch uplift from OIL's ba1 BCA," she said.
Moody's said OIL's credit metrics were already weakly positioned because of low oil and gas prices throughout 2020. Even though oil prices have now started to recover, Moody's expects prices to average below historical levels at least till 2023.
Incremental borrowings to fund the NRL acquisition and the Mozambique liquefied natural gas (LNG) project will further pressure OIL's credit metrics.
On March 26, OIL acquired an additional 54.2 per cent stake in NRL for Rs 8,670 crore that was funded by a mix of debt and internal accruals. Moody's adjusted debt also includes 160 million dollars as OIL's proportionate share of debt for the Mozambique LNG project.
Moody's expects OIL's leverage as measured by RCF/net debt will weaken to around 16 per cent for the fiscal year ending March 31, 2022 (fiscal 2022) from 51 per cent in fiscal 2020. These levels are significantly below the 20 to 25 per cent threshold required for the previous baa3 BCA.
Nonetheless, Moody's said the NRL acquisition will strengthen OIL's business profile because it will increase the company's presence in downstream refining sector and make it an integrated oil and gas company.
The acquisition will also help to partially temper the inherent volatility of the oil and gas industry. (ANI)