Moody affirms Baa1 rating for ONGC with stable outlook

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Published: July 17, 2019 4:27:35 AM

Higher crude oil realisation led to better earnings in FY19 for ONGC. The company's net profit in FY19 jumped 34% to Rs 26,716 crore. The net realisation improved 24% to $68.19 per barrel in FY19 compared with $55.19 per barrel in FY18.

Moody, Baa1 rating, ONGC, ONGC Videsh Vankorneft, ONGC Videsh, RCF, industry news, APSEZ, sez, industry news, moody ratingThe agency expects the company’s earnings for FY20 to be broadly in line with fiscal FY19 with oil price assuming to remain on average at per barrel. (Reuters)

Thanks to higher net oil price realisation, which has improved the credit metrics of ONGC, ratings agency Moody’s on Tuesday affirmed its ‘Baa1’ ratings for the oil explorer with a stable outlook. “Moody’s Investors Service has affirmed Oil and Natural Gas Corporation’s ‘Baa1’ local and foreign currency issuer ratings, and the ‘Baa1’ ratings on the senior unsecured bonds guaranteed by ONGC and issued by ONGC Videsh and ONGC Videsh Vankorneft,” said the agency.

The company’s debt metrics, as measured by retained cash flow (RCF) to net debt, has improved in the last 12 months from 40% in FY18 to 51% in FY19. Higher crude oil realisation led to better earnings in FY19 for ONGC. The company’s net profit in FY19 jumped 34% to Rs 26,716 crore. The net realisation improved 24% to $68.19 per barrel in FY19 compared with $55.19 per barrel in FY18.

The agency expects the company’s earnings for FY20 to be broadly in line with fiscal FY19 with oil price assuming to remain on average at $65 per barrel. “This should result in ONGC generating positive free cash flow – despite the company’s high level of capital spending and shareholder returns – which Moody’s expects the company will use to reduce its borrowings,” said the ratings agency.

Factors working in favour of ONGC include its position of being the largest integrated oil and gas company in India having significant reserves, production and crude distillation capacity; substantial operating cash flow generation capacity; and an improved credit metrics which may be affected by crude oil price volatility.

Moody’s also expects that the company will not be asked to share fuel subsidies, as long as oil prices stay below $70 per barrel. Moody’s assigns Baa3 to Adani Ports and SEZ’s proposed bonds. Moody’s Investors Service has assigned ‘Baa3’ rating to the proposed senior unsecured bonds by Adani Ports and Special Economic Zone (APSEZ).

APSEZ will apply the proceeds of the bond issuance to refinance $650 million worth of senior unsecured bonds maturing in July 2020.
“APSEZ’s Baa3 issuer rating primarily reflects the company’s strong market position as the largest port developer and operator in India by cargo volume, and the strength of its landmark Mundra Port concession in Gujarat,” the ratings agency said in a release.

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