Moody's,Fitch assign Baa3, BBB- rating to BPCL $2-bn bond sale

Global rating agencies Moody's and Fitch today assigned Baa3 and BBB- ratings with stable outlook respectively, in line with the sovereign's, to the proposed USD 2-billion bond sale programme of state-owned Bharat Petroleum Corp Ltd, which is likely to hit the market anytime.
I-bankers said the deal can happen any time depending on the flow of government approvals and other regulatory nods. But none of them was ready to be named.
Chairman S Varadarajan could not be reached for comments.
In a note, Vikas Halan, vice-president and senior credit officer at Moody's Investors Service said his agency has assigned a provisional Baa3 rating to BPCL's proposed USD 2-billion medium term note programme with a stable outlook.

"The rating, which is in line with BPCL's issuer rating of Baa3, combines its baseline credit assessment of Ba2 and a two-notch uplift under Moody's joint-default analysis methodology for government-related issuers," Halan said.
His counterpart at rival agency Fitch Ratings Tahera Z Kachwalla, assigning BBB- rating with stable outlook, said strong government linkage both operationally and strategically makes BPCL a strategically important entity for the state.

BPCL is the third-largest refiner with a capacity of 30.5 mt, accounting for 14 per cent of total capacity, and the second-largest oil marketer with a 21 per cent market share.
The Fitch note also noted that the falling oil prices to below USD 50 and the diesel and petrol deregulation, will also help bring down inventory costs and under recoveries. These two events will reduce BPCL's working capital requirements and the short-term debt required to fund it.

Moody's also expects BPCL to receive full reimbursement for its current fiscal year's under-recoveries.
"Over the next 12 months, BPCL's total borrowings and interest costs will fall in tandem with the fall in subsidies. At the same time, an improvement in its credit metrics will continue to be constrained by our expectations of weak refining margins for the industry, as well as the company's large planned capital expenditures," said Halan.