State-run oil refiner Bharat Petroleum Corporation (BPCL) is expected to pay an interim dividend of Rs 14 per share next month, according to rating agency Moody’s. The quantum of dividend is expected to be higher in the absence of a share buy-back.
“Although BPCL -- unlike some of the other state-owned oil & gas companies in India -- has not yet announced a share buyback, Moody's expects the company will need to pay an interim dividend in February 2019 of at least Rs 14 per share, equal to the interim dividend paid in February 2018,” the agency said in a note on BPCL affirming its Baa2 rating for the company and in its subsidiary- BPRL International Singapore (BPRL).
Moody’s added, “In the absence of a share buyback and given an increase in the company's reported net profit, the interim dividend payable could be even higher than Moody's current estimates.” The agency expects any such move to further weaken the company's credit metrics. In August 2018, BPCL already paid a final dividend of Rs 7 per share for the financial year 2017-2018.
On 13th December, Indian Oil Corporation (IOC)s board approved a share buyback of approximately 3.06 per cent of the total paid up equity share capital of the company at a price of Rs 149 per equity share payable in cash for an aggregate consideration not exceeding Rs 4,435 Crore. In the same month, Oil and Natural Gas Corporation (ONGC) announced a buy back for 1.97 pe cent of the total number of its equity shares.
The ratings agency expects the oil refiner’s debt/EBITDA to remain elevated at 2.7 times-2.8 times in the fiscal year ending March 2019, compared to 2.8 times in financial year 2017-2018. "The affirmation of BPCL's ratings reflects our expectation that its credit profile will remain constrained by high shareholder returns despite its improving operating profile," said Vikas Halan, senior Vice President with Moody’s.
Moody’s added it expects the company to moderate its dividend payments or adjust its capital spending over the next 12-18 months. Otherwise, its baseline credit assessment for the current rating may come under pressure.
The state refiner’s rating also suffers from an overhang due to uncertainty around the government's policy for the oil & gas sector, especially in terms of fuel pricing and sector consolidation, according to Moody’s. Part of the uncertainty is attributed to the October 4, 2018 move wherein the Centre imposed a Re 1 per litre fuel subsidy burden on state-owned oil refining companies. “While the move has not yet impacted the oil companies' credit metrics, uncertainty remains around further potential subsidies for oil marketing companies,” Moodys said in its statement.
Moody’s in its note also raised concerns over the government’s plans to accelerate consolidation in the oil and gas sector. “Such that larger companies could be asked to acquire smaller ones. As such, BPCL remains exposed to event risk,” the note added.