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Moody’s Investors Service on Tuesday downgraded Oil India Ltd’s baseline credit assessment (BCA) to ba1 from baa3, while affirming the firm’s Baa3 issuer ratings and senior unsecured bond ratings.
The ratings agency also affirmed the baa3 rating on the backed senior unsecured notes issued by Oil India International Pte. Ltd. and guaranteed by OIL.
“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 12-18 months driven by low oil and gas prices, as well as additional borrowings to increase its stake in Numaligarh Refinery Limited (NRL) and fund the Mozambique LNG project,” said Sweta Patodia, Moody’s Analyst, in a statement on Tuesday.
“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 added.
OIL’s credit metrics were already weakly positioned because of low oil and gas prices throughout 2020, the statement added. 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 project will further pressure OIL’s credit metric, the statement said.
“Nonetheless, Moody’s acknowledges that the NRL acquisition will strengthen OIL’s business profile because it will increase the company’s presence in the downstream refining sector and make it an integrated oil and gas company,” the statement added. “The acquisition will also help partially temper the inherent volatility of the oil and gas industry.”
“At the same time, the ratings take into account OIL’s small scale, high level of asset concentration, the execution risks associated with its inorganic growth strategy for overseas expansion, and its aggressive financial policy that results in high shareholder payments even in a volatile oil price environment,” the statement said.
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