India’s three state-owned oil refining and marketing companies, Indian Oil Corporation (IOCL), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL), have been affirmed stable ratings by Moody’s. The affirmation reflects the view that these companies’ operating performance will continue to improve due to lower crude oil prices, which will ease marketing losses and moderate working capital requirements.
According to Moody’s, Brent crude oil prices have fallen by 17% since October 2022, which has resulted in oil marketing companies increasing their retail selling prices of gasoline and gasoil while remaining unchanged.
This has benefited Indian refiners, who have also enjoyed increased purchases of Russian crude oil, which is trading at a discount to Brent crude. Moody’s expects this trend to continue for the next 12-18 months and benefit Indian refiners, while refining margins are expected to remain firm on strong demand in Asia and Europe.
In addition, the Central Government has allocated Rs. 300 billion ($3.7 billion) as capital support for the oil marketing sector, with a one-time grant of Rs. 220 billion received in January 2023 to cover the loss of OMCs on the sale of domestic liquefied petroleum gas. These government support measures are in line with Moody’s expectation, reaffirming the rating agency’s view that the oil marketing sector remains strategically important to the government from the point of view of energy security and that the government will not allow these companies to continue to suffer losses indefinitely.
Moody’s expects OMC earnings to continue to improve over the next 12-18 months, as long as net real prices for crude oil and gasoline and gasoil remain at or near current levels, resulting in an improvement in credit metrics by March 2024. However, due to their status as government-owned/linked companies, all three entities have strong access to domestic and international funding markets.
Moody’s endorsement rating reflects the companies’ significant role in India’s oil and gas sector, given their leading market position in the country’s refining and marketing sector.
It also reflects the government’s significant control over the companies’ business strategy through its ability to appoint all of its boards of directors and majority ownership in all three entities.
Moody’s Investors Service, often referred to as Moody’s, is the bond credit rating business of Moody’s Corporation, representing the company’s traditional line of business and its historical name. Moody’s Investors Service provides international financial research on bonds issued by commercial and government entities.
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