Moody's assigns Baa2 rating to ONGC's proposed bonds

Moody's said the bonds will be unconditionally and irrevocably guaranteed by ONGC and the ratings outlook is stable

Moody's Investors Service has assigned a Baa2 rating to the proposed foreign currency senior unsecured bonds to be issued by ONGC Videsh Vankorneft (OVVPL), a wholly-owned subsidiary of Oil and Natural Gas Corporation (ONGC)

Moody's, in its latest report, said bonds will be unconditionally and irrevocably guaranteed by ONGC and the ratings outlook is stable. "Even though the guaranteed amount has been restricted to 109% of the principal amount of bonds outstanding, we view it as sufficient to cover the amounts due to bondholders," said Moody's.

"ONGC's issuer ratings incorporate our expectation that the impact of declining oil prices on the company's cash flows will remain low, as the company benefits from a lowering of fuel subsidies, reduction in taxes, and improved contributions from its downstream business. While the company's cash flow from operations will decline and its credit metrics will weaken, ONGC's financial metrics will remain at a level that is within the tolerance levels for its current ratings," says Vikas Halan, Moody's vice-president and senior credit officer.

Moody's notes that ONGC's liquidity position is strong, with cash and cash equivalents of Rs 25800 crore as of March 31, 2016, against a debt of Rs 9600 crore maturing over the next 12 months. In addition, the company has access to other sources of liquidity on its balance sheet. ONGC is 68.93% owned by the Government of India.