Moody's Assigns 'Baa3' Rating to BPCL's $2-Billion Bond Sale

Mumbai: Global rating agencies Moody's and Fitch on Wednesday assigned 'Baa3' and 'BBB-' ratings with stable outlook, respectively, in line with the sovereign's, to state-owned Bharat Petroleum Corp's proposed $2-billion bond sale programme.

I-bankers said the deal can happen any time depending on the flow of government approvals and other regulatory nods. But none of them was ready to be named. Chairman S Varadarajan could not be reached for comments.

In a note, Vikas Halan, vice president and senior credit officer at Moody's Investors Service, said his agency has assigned a provisional 'Baa3' rating to BPCL's proposed $2-billion medium-term note programme with a stable outlook.

"The rating, which is in line with BPCL's issuer rating of Baa3, combines its baseline credit assessment of Ba2 and a two-notch uplift under Moody's joint-default analysis methodology for government-related issuers," Mr Halan said.

His counterpart at rival agency Fitch Ratings Tahera Z Kachwalla, assigning 'BBB-' rating with stable outlook, said strong government linkage both operationally and strategically makes BPCL a strategically important entity for the state.

BPCL is the third-largest refiner with a capacity of 30.5 mt, accounting for 14 per cent of total capacity, and the second-largest oil marketer with a 21 per cent market share.

The Fitch note also said that the falling oil prices to below $50 and the diesel and petrol deregulation will also help bring down inventory costs and under recoveries.

These two events will reduce BPCL's working capital requirements and the short-term debt required to fund it. Moody's also expects BPCL to receive full reimbursement for its current fiscal year's under-recoveries.

"Over the next 12 months, BPCL's total borrowings and interest costs will fall in tandem with the fall in subsidies. At the same time, an improvement in its credit metrics will continue to be constrained by our expectations of weak refining margins for the industry, as well as the company's large planned capital expenditures," said Mr Halan.

He said the stable outlook reflects the agency's expectation that BPCL will continue to have strong access to funding in both the international and domestic markets.

BPCL has 20 upstream blocks (8 in India and 12 abroad), with some successful discoveries in the Rovuma Basin in Mozambique (in which it has 10 per cent stake), Brazil (20 per cent stake), and West Australian onshore assets in Perth (27.8 per cent stake).

After clocking a 20 per cent increase in forex debt raising in 2014 at $19 billion, the New Year has seen only one bond issue by Reliance Industries which last had week sold $1 billion debt at 4.125 per cent coupon for the 10-year money.