Moody's assigns Baa1 to ONGC's proposed senior unsecured notes

Moody's Investors Service on Wednesday assigned a Baa1 rating with a negative outlook to the proposed senior unsecured notes to be issued by Oil and Natural Gas Corporation Ltd (ONGC) under its two billion dollars medium-term note programme.

"The notes' rating is in line with ONGC's Baa1 issuer rating which is in turn primarily driven by its standalone credit profile as captured by the company's Baa1 BCA," said Moody's Senior Vice President Vikas Halan.

ONGC's Baa1 baseline credit assessment (BCA) reflects its position as the largest integrated oil and gas company in India with significant reserves, production and crude distillation capacity.

It also reflects its substantial operating cash flow generation capacity and solid credit metrics that have improved but remain constrained by volatile -- although range-bound -- oil prices and high shareholder returns.

At the same time, the BCA incorporates Moody's expectation that the company will not be asked to share fuel subsidies as long as oil prices stay below 70 dollars per barrel.

ONGC's issuer rating also incorporates the company's high likelihood of extraordinary support from and very high dependence on the government in times of need. However, this assumption of government support has not resulted in any rating uplift as the sovereign's rating is below ONGC's BCA.

Given ONGC's strong credit metrics and status as a government-owned company, it enjoys strong access to debt capital markets and has substantial financial flexibility through equity stakes in Indian Oil Corporation Ltd and Gail India Ltd which together are valued at about Rs 21,000 crore.

Moody's ratings for ONGC are based on the full consolidation of Hindustan Petroleum Corporation Ltd which includes the full consolidation of HPCL's 49 per cent owned joint venture HPCL-Mittal Energy Ltd.

The negative outlook on ONGC is in line with the negative outlook on the Indian government's rating and reflects Moody's view that ONGC's ratings will be downgraded if India's sovereign rating is downgraded to Baa3 from Baa2.

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