Fitch rates BPCL bond as anticipated

International ratings agency Fitch gave Bharat Petroleum Corporation's (BPCL) proposed $2 billion medium-term bond issue an anticipated rating of 'BBB-' on Tuesday.

The Indian government's 54.9 percent ownership in BPCL has been described as the key rating driver. Fitch matched BPCL's rating with that of India on its parent and subsidiary linkage criteria.

The ratings agency termed BPCL to be a strategically important entity to the Indian state. It is the third largest refiner in India with a capacity of 30.5 million tonnes per annum (mtpa) and accounts for 14 percent of the capacity in India.

After the deregulation of diesel prices, BPCL currently sells kerosene and liquefied petroleum gas at regulated prices determined by the government.

The fall in global crude oil prices will contribute to reducing BPCL's working capital requirements and short-term debt needed to fund it, Fitch said.

BPCL is expanding its Kochi refinery to 15.5 mtpa from the current 9.5 mtpa and has a high capex of Rs.300 billion for the next four years. The high capex is expected to yield negative cash flows over the next four to five years.

There are 18 upstream oil blocks for BPCL, eight of them are in India and ten overseas. Successful discoveries occurred in its Rovuma Basin located in Mozambique, Brazilian assets, and West Australian onshore assets in Perth. BPCL has 10 percent, 20 percent and 27.8 percent participating interests in these respectively.

Fitch said the rating is vulnerable to downgrading of India's sovereign rating and the possibility of thinning state and BPCL linkages in the future, while a positive rating can be earned by the upgrade of sovereign rating and the maintenance of current BPCL and state linkages.