Moody’s, Fitch assign Baa3, BBB- rating to BPCL $2-bn bond sale

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Mumbai | Published: January 29, 2015 7:45:13 AM

Global rating agencies Moody's and Fitch today assigned Baa3 and BBB- ratings with stable outlook respectively, in line with the...

Global rating agencies Moody’s and Fitch today assigned Baa3 and BBB- ratings with stable outlook respectively, in line with the sovereign’s, to the proposed USD 2-billion bond sale programme of state-owned Bharat Petroleum Corp Ltd, which is likely to hit the market anytime.

I-bankers said the deal can happen any time depending on the flow of government approvals and other regulatory nods. But none of them was ready to be named.

Chairman S Varadarajan could not be reached for comments.

In a note, Vikas Halan, vice-president and senior credit officer at Moody’s Investors Service said his agency has assigned a provisional Baa3 rating to BPCL’s proposed USD 2-billion medium term note programme with a stable outlook.

“The rating, which is in line with BPCL’s issuer rating of Baa3, combines its baseline credit assessment of Ba2 and a two-notch uplift under Moody’s joint-default analysis methodology for government-related issuers,” Halan said.

His counterpart at rival agency Fitch Ratings Tahera Z Kachwalla, assigning BBB- rating with stable outlook, said strong government linkage both operationally and strategically makes BPCL a strategically important entity for the state.

BPCL is the third-largest refiner with a capacity of 30.5 mt, accounting for 14 per cent of total capacity, and the second-largest oil marketer with a 21 per cent market share.

The Fitch note also noted that the falling oil prices to below USD 50 and the diesel and petrol deregulation, will also help bring down inventory costs and under recoveries. These two events will reduce BPCL’s working capital requirements and the short-term debt required to fund it.

Moody’s also expects BPCL to receive full reimbursement for its current fiscal year’s under-recoveries.

“Over the next 12 months, BPCL’s total borrowings and interest costs will fall in tandem with the fall in subsidies. At the same time, an improvement in its credit metrics will continue to be constrained by our expectations of weak refining margins for the industry, as well as the company’s large planned capital expenditures,” said Halan.

He said the stable outlook reflects the agency’s expectation that BPCL will continue to have strong access to funding in both the international and domestic markets.

BPCL has 20 upstream blocks (8 in India and 12 abroad), with some successful discoveries in the Rovuma Basin in Mozambique (in which it has 10 percent stake), Brazil (20 percent stake), and West Australian onshore assets in Perth (27.8 per cent stake).

After clocking a 20 percent rise in forex debt raising in 2014 at USD 19 billion, the new year has seen only one bond issuance by Reliance which last had week sold USD1 billion debt at 4.125 per cent coupon for the 10-year money.

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