Rating agency Standard & Poor?s on Wednesday downgraded the rating for Indian Oil Corp to junk, and revised its outlook on Reliance Industries to negative.
The rating downgrade follows the delay by the government to compensate India?s largest oil marketing company for having to sell cooking gas and kerosene at far below market prices. IOC now has a corporate rating of BBB- instead of BB+. The under-recoveries led to IOC posting a net loss of Rs 7,047.13 crore for the quarter ended September 30.
The rating is pivoted on the deteriorating financial profile and the weak liquidity position of IOC. S&P said its outlook for the state-run refiner is, however, stable.
Rating agencies issue two variables to judge a company. These are ratings and outlook.
The outlook for Reliance Industries was downdraded to negative from stable on increased debt and pressure on profitability. The global economic slowdown, which hit commodities and oil refining, has affected the profitability of RIL, said S&P.
Lower demand for fuel, especially in developed markets, will further impact the profitability of RIL, said S&P.
Meanwhile, S&P has affirmed its BBB long-term corporate credit rating on Reliance Industries, indicating the bonds are of medium grade quality. S&P anticipates the refining margins of RIL will dip to $9-10 per barrel in near term. S&P said the outlook on RIL can be revised back to stable on evidence of improved leverage and resilience. The cash flow measures of Reliance Industries are expected to improve after its Jamnagar refinery becomes fully operational.
?The stable outlook on the rating on (IOC) incorporates expected near-term improvement in financial metrics and the government?s ultimate support,? wrote S&P?s credit analyst Mehul Sukkawala.