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Fitch Ratings has assigned Indian Oil Corporation (IOC) US-dollar-denominated notes, a rating of BBB. The notes will rank on an equal footing with other senior unsecured borrowings of IOC.
The rating of the notes is in line with IOC's Long-Term Issuer Default Rating of 'BBB-' as they will be direct, unconditional and unsecured obligations of the company, a Fitch statement said.
Fitch expects IOC's capex to remain high to upgrade refineries to meet new emission standards (BS-VI) and to expand refining and petrochemical capacity, including the expansions underway. Fitch forecasts average capex of ₹ 25000 crore to ₹ 30000 crore per annum over the next five to six years. These investments are expected to support an improvement in IOC's margins over the medium term.
Fitch also said that Public Sector Undertaking (PSU) oil marketing companies (OMC) are exposed to regulatory risks from state interference in fuel prices. “The government on October 4, 2018 reduced the prices of petrol and diesel by ₹ 2.50 a litre by cutting the excise duty on these fuels by ₹ 1.50 a litre and directing the state OMCs to bear the cost of ₹ 1 a litre. The fall in global crude oil prices since then, in our view, has eased the pressure on margins. Prices have returned to market based but risks remain in the case of rising crude oil prices,” a Fitch statement said.
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