BPCL divestment ‘event risk’; Fitch keeps ‘BBB-’ rating, oil co’s fate closely linked with India

By: |
September 9, 2020 2:20 PM

While the Narendra Modi-government has pinned hopes on BPCL privatisation to meet its FY21 disinvestment goal, rating agencies are not sure how the stake sale will play out on the balance sheet of the company.

Fitch Ratings said that it continues to treat the potential divestment of BPCL as an ‘event risk’, in absence of clarity over crucial info.

While the Narendra Modi-government has pinned hopes on BPCL privatisation to meet its FY21 disinvestment goal, rating agencies are not sure how the stake sale will play out on the balance sheet of the company. Fitch Ratings said that it continues to treat the potential divestment of BPCL as an ‘event risk’, in absence of clarity over crucial info. “We continue to treat the potential divestment of BPCL by the Indian state as an event risk, as there is little information about bidders, valuation, and the potential transaction structure,” Fitch Ratings said in a report on Tuesday.

Government plans to sell all of its 53% stake in the company. Affirming BPCL rating to BBB-, Fitch said that BPCL owns assets across many verticals, and bidders may not find them interested in all of them. The government has pushed the deadline for Expression of Interest (EoI) to 30 September 2020. This is the third time since the government extended submission deadline since the initial announcement in November 2019.

“The slow progress has been due to a near halt in international travel to India and a generally cautious investment approach by most entities in current market conditions, in our view,” Fitch Ratings said. The rating agency will now monitor further developments and reassess rating if the sale progresses.

What’s dragging BPCL’s credit rating?

With the economy facing the headwinds of the coronavirus pandemic, Fitch Ratings this week cut India’s growth projection. The agency linked BPCL rating with the sovereign as the government owns a majority stake in the oil and gas company. “Fitch equalises BPCL’s rating with that of its largest shareholder, the India sovereign (BBB-/Negative), based on Fitch’s Government-Related Entities Rating Criteria, due to the strong likelihood of government support. The Negative Outlook reflects that on the Indian sovereign,” it said. Moreover, there is a generally weak demand for petroleum products and gross refining margins (GRMs) in the near term also weigh down.

With a reaffirm in BPCL ratings, that of its subsidiary BPRL International Singapore Pte Ltd’s US dollar guaranteed notes has also been revised at ‘BBB-‘.

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