Fitch Ratings, in its special report, ‘Oil sector comparison: China and India’ released on Tuesday, said that the relatively better credit quality of the Chinese oil sector reflects China’s larger economy, coupled with its more industrialised economic structure, relatively well-developed infrastructure, and more integrated business portfolio. The agency also noted that the Chinese government (long-term foreign currency issuer default rating of ‘A+’/stable) is rated higher than the government of India (‘BBB-‘ (BBB minus)/stable).
”Fitch’s rating differentials between the Chinese oil companies and the Indian counterparts reflect the former’s fundamental operational strength as well as the Chinese government’s stronger ability to provide support,” said Pekka Laitinen, co-head of Fitch’s Asia-Pacific energy and utilities team. ”Further economic development in India, together with successful business diversification, will be needed in order for the Indian oil sector to achieve a similar credit quality to the Chinese oil sector,? he added. Fitch also noted that the oil sectors in both China and India have similarities in many aspects. Their respective governments under similar regulatory environments, resulted in high entry barriers, tightly control both the economies. Given the strong demand growth for oil products in the both countries, both sectors also demonstrate a strong intention to secure additional oil resources through acquisition of overseas oil assets. Additionally, the financial risk profiles of most of the major oil players in China and India remain comparable.
Despite this, China’s much larger oil market, the major Chinese oil companies’ more integrated business portfolio and China’s net deficit position for refined oil products emerge as the main difference between both sectors, resulting in overall better credit quality of the former.