Moody’s lowers Oil India’s credit score evaluation on Numaligarh refinery buyout


Moody’s expects OIL’s leverage will weaken to round 16% for FY22 from 51% in FY20, which is considerably beneath the 20%-25% threshold required to take care of the ‘baa3’ BCA.

Moody’s Traders Service on Tuesday downgraded Oil India’s (OIL’s) baseline credit score evaluation (BCA) to ‘ba1’ from ‘baa3’ because it expects borrowings to fund the acquisition of the extra 54.2% stake in Numaligarh Refinery (NRL) for Rs 8,676 crore to place extra strain the corporate’s credit score metrics.

The current acquisition elevated OIL’s stake in NRL to 80.2%. OIL’s credit score metrics had been already ailing due to low oil and fuel costs all through 2020, the score company famous.

“The downgrade of OIL’s BCA is pushed by our expectation that the corporate’s credit score metrics will stay weakly positioned at the very least over the subsequent 12-18 months pushed by low oil and fuel costs, in addition to extra borrowings to extend its stake in NRL and fund the Mozambique LNG mission,” stated Sweta Patodia, a Moody’s analyst.

Moody’s expects OIL’s leverage will weaken to round 16% for FY22 from 51% in FY20, which is considerably beneath the 20%-25% threshold required to take care of the ‘baa3’ BCA.

The NRL stake sale was a part of the BPCL disinvestment plan because the latter held 61.7% possession of the refinery. The Assam authorities held 12.4% stake in NRL whereas OIL owned the remaining shares. Moody’s has nevertheless affirmed the ‘baa3’ issuer rankings and senior unsecured bond rankings of OIL. “The affirmation of OIL’s Baa3 issuer score displays our expectation of the excessive probability of extraordinary help from the Indian authorities that leads to a one-notch uplift from OIL’s ba1 BCA,” Patodia added.

The company famous that after the NRL acquisition, OIL’s liquidity will turn out to be insufficient as a result of the acquisition has been partly funded by a short-term facility. As of December 31, 2020, the corporate had money and money equivalents of Rs 3,390 towards Rs 4,300 crore debt maturing over the subsequent 12 months.

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