Moody's retains Baa3 rating on Indian Oil, Bharat Petroleum and Hindustan Petroleum

New Delhi: Moody's Investor Service on Thursday retained its Baa3 rating for all three state-run Indian oil marketing companies (OMCs) on the basis of continued improvement in their credit metrics.

"Moody`s Investors Service has affirmed the Baa3 ratings of India`s three state-owned oil refining and marketing companies -- Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL)," the American rating agency said in a release.

"The outlook on the ratings of all three oil refining and marketing companies is positive," it said. 

"The ratings affirmation reflects the continued improvement in the credit metrics of the three oil refining and marketing companies, as diminished levels of fuel subsidies and moderated working capital requirement - resulting from low oil prices - have reduced borrowings," Moody`s Vice President Vikas Halan said in the statement.

Baa3 rating indicates moderate credit risk.

Moreover, OMCs` earnings have improved as the commissioning of new capacity and higher marketing margins have more than offset weaker refining margins, Moody`s said.

"We expect the earnings of the state-owned refiners to improve as their additional capacities become fully operational during fiscal 2018," Halan added. 

"As a result of better earnings and lower borrowings, the credit metrics of the oil refining and marketing companies have improved to levels that are more consistent with a higher baseline credit assessments (BCA)," the ratings agency said. 

It noted, howvever, that the Indian OMCs plan to invest in upstream assets through acquisitions. 

"BPCL and IOC invested $1 billion in 2016, buying upstream assets in Russia," the report said.

"The continued need to expand capacity and investment in upstream assets could result in increased borrowings and weaker credit metrics, especially if refining or marketing margins decline," it added. 

Moody`s has also assigned Baa3 ratings to the foreign currency senior unsecured bonds to be issued by BPRL International Singapore Pte Ltd. and guaranteed by BPCL.