Moody's affirms Baa2 ratings on Oil India

Moody's Investors Service has affirmed Oil India's (Oil India) Baa2 issuer and bond ratings.

The outlook for the ratings is stable.

RATINGS RATIONALE

The rating actions follows Moody's revision of its assumptions for oil prices. Moody's expects the crude oil price will stay at current low level for longer period. Moody's current price assumption for Brent is US$ 43 per barrel and US$ 48 per barrel in 2016 and 2017 respectively.

Oil India's Baa2 rating is equivalent to its baa2 baseline credit assessment (BCA) .

'The affirmation of ratings on Oil India reflects the reduction in fuel subsidy burden that partly offsets the impact of low oil prices resulting in a much lower decline in net realized prices of oil for the companies.

Oil India's net oil price realization was $46.2 per barrel in fiscal year ending March 2015 and will average $44 per barrel over the next 3 years, based on our oil price and fuel subsidy burden assumptions,' says Vikas Halan, a Moody's Vice President and Senior Credit Officer.

'In addition, Oil India will maintain strong credit metrics, which will remain within our tolerance for the current ratings. Oil India will maintain retain cash flow to net debt of 70% -80% over the next 3 years against our downgrade threshold of 60%,' says Halan, who is also Moody's lead analyst for Oil India.

Oil India's liquidity is excellent with cash and cash equivalents of INR88 billion as of March 2015 and debt maturing over next 12 months of INR4.6 billion.

The rating outlook is stable reflecting Moody's expectation a) that the fuel subsidy burden on OIL will remain low, b) the company will lower shareholder payments in line with reduction in its net profits and c) that the company's growth plan will continue to be executed within the tolerance level of its current ratings.

Negative pressure on the ratings will develop if 1) the sovereign rating for India is downgraded; or 2) any major adverse changes are made to the fuel subsidy mechanism; or 3) OIL increases its pace of acquisition, such that it results in higher business risk and a deterioration of its credit metrics.

Moody's would consider adjusted debt-to-proved developed reserves above $5 per barrel, adjusted debt to average daily production above $15,000 per barrel, and retained cash flow (RCF) to adjusted debt below 60%, on a sustained basis, as indicative of negative pressure on the ratings.

Upward pressure on the rating in the next 12-18 months is unlikely, given the current scale of OIL's production and reserves.

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