Bharat Petroleum to raise $2 bn for capex

State-run Bharat Petroleum Corporation Limited is planning to raise $2 billion through medium-term notes to finance its capex initiatives. Fitch Ratings has assigned a 'BBB-' rating to the notes.

BPCL is the third-largest refiner in the country with a capacity of 30.5 million tonnes per annum (mtpa) accounting for 14% of refining capacity in India. It is also the second-largest marketer of petroleum products with a 21% market share.

BPCL has outlined a capex of more than Rs 30,000 crore over the next four years. The largest part of the capex is for the expansion of the Kochi refinery to 15.5mtpa from the current 9.5mtpa at a cost of around Rs 16500 crore.

Last month BPCL officials said the company is raising Rs 4,000 crore for the expansion of its Kochi refinery and to fund its petrochemicals venture through the State Bank of India (SBI).

Fitch Ratings said the high capex is likely to lead to continued negative free cash flows over the next four to five years.

"With BPCL likely to generate negative free cash flows due to high capex, Fitch expects the company's net leverage to increase to around five times over the next two to three years. BPCL has a comfortable liquidity position with cash and cash equivalents of Rs 5000 crore at end-September 2014. The company also enjoys good access to international and domestic capital markets," it said.

BPCL also plans to invest Rs 13,000 crore in hydrocarbon exploration and production in Mozambique and Brazil over the next four years.

BPCL holds 20 upstream blocks-- eight in India and 12 abroad. Of these blocks, its most successful discoveries have been in the Rovuma Basin in Mozambique, where it holds 10% participating interest and in its Brazilian assets where it holds 20% participating interest. It also holds 27.8% stake in West Australian onshore assets in Perth.

The Mozambique asset is assessed at having recoverable resources of 50-70 trillioin cubic feet of natural gas, and the investors in the project also plan to set up a natural gas liquefaction plant with two trains with an initial capacity of 5 million tonnes per annum each.