Moody’s rating for ONGC

GN Bureau | December 21, 2015



Meanwhile, Moody's Investors Service has affirmed Oil and Natural Gas Corporation Ltd.'s (ONGC) Baa1 local currency issuer rating, Baa2 foreign currency issuer rating, and the Baa2 ratings on the senior unsecured bonds issued by ONGC Videsh Limited and guaranteed by ONGC.

The outlook on all ratings is stable.

ONGC's Baa1 rating local currency ratings is equivalent to its baseline credit assessment (BCA) of baa1. ONGC's Baa2 foreign currency ratings remains constrained by the ceiling for foreign currency bonds in India.

The rating actions follows the sharp reduction in Moody's oil price assumptions in light of continuing oversupply in the global oil markets. Moody's now assumes the Brent crude, the international benchmark, to average $43 per barrel and US$ 48 per barrel in 2016 and 2017 respectively. This marks a $10 per barrel and $12 per barrel reduction from its previous assumptions for 2016 and 2017 respectively.

'The affirmation of ONGC's rating, despite lower oil price assumptions, reflects the reduction in fuel subsidy burdens that partly offsets the impact of low oil prices resulting in a much lower decline in net realized prices of oil for the companies,' says Vikas Halan, a Moody's Vice President and Senior Credit Officer.

ONGC's net oil price realization was $44.9 per barrel in fiscal year ending March 2015 and will average $46 per barrel over the next 3 years.

ONGC's overseas business and its gas business, which accounted for about 23% of its gross revenues (before excise duty) for fiscal year ended March 2015 (FY2015), will become more negatively affected from the decline in oil prices as they were not previously exposed to fuel subsidies in India. Moody's estimates that ONGC's consolidated EBITDA will decline by about 18-20% in each of FY2016 and FY2017.

'ONGC, however, will maintain a strong credit metrics, which will remain within our tolerance for the current ratings. Despite the decline in EBITDA, we expect ONGC to maintain its retained cash flow to net debt in the range of 48%- 60% over the next 3 years against our downgrade threshold of 45%,' says Halan, who is also Moody's lead analyst for ONGC.

The rating outlook is stable reflecting Moody's expectation a) that the fuel subsidy burden on OIL will remain low, b) the company will lower shareholder payments in line with reduction in its net profits and c) that the company's growth plan will continue to be executed within the tolerance level of its current ratings.

The likelihood of the upgrade of the local currency ratings in the next 12 -18 months remains low given the low oil price environment.

The local currency ratings may experience downward pressure if 1) the sovereign rating is downgraded, or 2) any major adverse changes are made to the regulatory scheme, or 3) ONGC increases its pace of acquisitions such that it results in higher business risk and deterioration of its credit metrics. Credit metrics that would indicate a downward pressure on the rating include a) RCF/adjusted debt below 45%, and b) adjusted debt/proved developed reserves above $5 per barrel.

The principal methodology used in these ratings was Global Independent Exploration and Production Industry published in December 2011. Other methodologies used include the Government-Related Issuers methodology published in October 2014. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Oil and Natural Gas Corporation Ltd. (ONGC) is India's largest exploration and production (E&P). ONGC is 68.93% owned by the government of India (Baa3 positive).

Comments

 

Other News

3% of medicines are of poor quality: Survey

 More than three percent of medicines in India are ‘Not of Standard Quality’ (NSQ) and 0.0245 percent spurious, reveals a survey report on drugs quality by the ministry of health.  The survey carried out by National Institute of Biologicals (NIB), Noida found that out of the

BEL unveils new weapon system for MBT Arjun tank

 Bharat electronics limited (BEL) has launched a new weapon control system — Remote Controlled Weapon Station (RCWS) / Air Defence Weapon Station (ADWS) for 12.7 mm gun of MBT Arjun Mk II battle tank during recently concluded Aero India 2017 in Bengaluru. The new weapon control system

Sasikala camp in talks with OPS faction

 The Sasikala camp is in talks with the O Panneerselvam (OPS) faction and they are trying to win them over, says an AIADMK insider. Negotiation have started between the main AIADMK, which is with Sasikala, and the splinter group that is supporting former chief minister OPS. The party insider

Stories to read over the weekend

On October 1 last year, Mehtab Alam Ansari, 30, who worked as a tailor in Delhi, had arrived in his village, Chepa Khurd in Barkagaon tehsil of Harazibagh district, to celebrate Eid with his family. That morning, he was nearing Dadi Kalan, a neighbouring village, to meet an acquaintance when he hea

ONGC to invest of Rs 7,327 cr for five projects

  State run enterprise oil and natural gas corporation limited (ONGC) has decided to invest Rs 7,327 crore to develop five projects to produce oil and gas. The decision was taken in its 290th board meeting held on February 23. The projects include development of R-Series fields, incl

Shiv Sena may again ally with BJP

The civic election results could well have long term implications in Maharashtra’s politics, with the Bharatiya Janata Party (BJP) doing dramatically well and the Shiv Sena failing to get a simple majority.   The Shiv Sena won 84 seats, while the BJP bagged 82 seats. Th

Video

Digital Transformation Summit

Current Issue

Opinion

Facebook    Twitter    Google Plus    Linkedin    Subscribe Newsletter

Twitter