Baa2 ratings for Bharat Petroleum Corporation on improving operations: Moody's

Global rating agency Moody's Friday affirmed the Baa2 ratings on Bharat Petroleum Corporation and its subsidiary BPRL International Singapore (BPRL) on improving operating profile despite weak credit metrics, with a stable outlook. The Singapore-based agency also expects a high likelihood of extraordinary support from the government in times of need and a very high level of dependence between the government and BPCL, a situation which results in a two-notch rating uplift.

"We expect BPCL's credit metrics will weaken and stay at the weaker end of the tolerance level of its Ba1 baseline credit assessment," Vikas Halan, a senior vice-president at the agency, said in a statement. He further said, the ratings also remain constrained by the uncertainty around the government policy for the oil & gas sector, especially in terms of pricing and sector consolidation.

Moody's expects the company to moderate its dividend payments or adjust its capital spending over the next 12-18 months such that its credit metrics will improve to levels more appropriate for its Ba1 baseline credit assessment. In the absence of such improvement, its baseline credit assessment may come under pressure, it said. The agency also noted that the operating profile has improved since the completion of its Kochi refinery in 2018 and its total refining throughput increased to 37.7 million tonnes in FY18 from 34.4 million tonnes in FY17.

The company has also upgraded its refinery to use a higher proportion of heavy crude oil, positioning it well to benefit from the increasing differential between light and heavy crude oil, it said. "Given its high dividend payouts and weak cash flow, Ba1 assessment is unlikely to be upgraded to Baa3 over the next 12-18 months. Also, upward pressure may emerge over time if there is clarity around the government policy for the oil & gas sector, and around BPCL's own financial policy for shareholder returns," it added.

(With inputs from agencies.)