Leading rating agency has Crisil has revised its rating outlook on the various long?term debt instruments of oil marketing companies (OMCs) including Chennai Petrochemical Corporation Ltd (CPCL) and Bharat Oman Refineries from ?stable? to ?negative? .
The outstanding ratings on these instruments have been reaffirmed at the existing levels. The revision in outlook reflects Crisil?s belief that the credit profiles of OMCs are becoming far more sensitive to the timeliness of support from the government of India (GoI) than they have been in the recent past.
In an environment of high crude prices, OMCs are being forced to absorb large under-recoveries because of the delay in the support they are to receive from GoI under the under-recovery sharing mechanism. Further delays could severely strain the liquidity profiles of these entities.
The ratings continue to be driven by the OMCs? strategic importance, and the key role that they play in implementing GoI?s socio-economic policies. The ratings centrally factor in the expectation of continued support from GoI towards absorbing a large portion of the under-recoveries that result from the government-controlled pricing of products: OMCs maintain the prices of sensitive products at the level indicated by GoI.
In Crisil?s opinion, the public policy role performed by OMCs makes it morally binding on GoI to support the companies and their key stakeholders, including lenders. GoI has demonstrated its support to the OMCs by issuing oil bonds to the extent of Rs.950 billion so far. Further, the Reserve Bank of India (RBI) has provided additional systemic support by ensuring liquidity for the oil bonds through
special market operations. This premise is central to Crisil?s credit ratings
on the OMCs.
The financial and liquidity profiles of the OMCs have already come under severe pressure due to a sharp decline in profitability and increased borrowings in the wake of under-recoveries caused by rising crude prices.