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
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.)