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Oil India's (OIL) proposed share

buyback is likely to weaken its financial profile as its net

leverage may rise to about 2.5 times by the end of fiscal

2020, according to Fitch Ratings.

This rate is higher than the rating agency's previous

expectation of 2.2x (times), shrinking the already-low

headroom for OIL's 'BBB-' standalone credit profile as Fitch's

current negative rating norms for net leverage is 2.5 times.

On November 21, OIL announced its plans to buy back

4.45 per cent of its shares at a total cost of Rs 1,090 crore.

"This, in our view, will drive up OIL's net debt

levels in addition to its need to fund its negative free cash

flows due to its plans for higher capex of about USD 600

million per year and dividends," the agency said.

Fitch noted that it expects both domestic and overseas

capex to rise over the next two to three years.

OIL aims to augment its domestic production and

reserves and will also be required to contribute towards its

share of the Mozambique liquefied natural gas development

after the final investment decision is made, likely in


"We are not yet considering any benefit to OIL's

financial or business profile from the higher capex over the

next two to three years due to the uncertainty around its oil

and gas exploration efforts and risks associated with the

Mozambique asset," it said.

However, Fitch may consider a one-notch uplift to

OIL's final rating if its standalone credit profile falls to

'BB+', it said.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)



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