You are here: Home » PTI Stories » National » News
Business Standard

Fitch revises outlook on HMEL to negative from stable

Business Finance

Press Trust of India  |  New Delhi 

Fitch Ratings on Monday said it has revised downwards its outlook on HPCL-Mittal Energy Ltd (HMEL) to 'negative' from 'stable', reflecting risk of potential weakening in standalone credit profile of its parent HPCL due to prolonged weakness in demand and refining margins.

"Demand for petroleum products has fallen sharply since the onset of the coronavirus pandemic in March 2020, leading to lower refining utilisation rates and margins," Fitch said affirming the long-term issuer default rating (IDR) at 'BB' to HMEL.

The agency has also affirmed the ratings on the company's USD 375 million 5.25 per cent senior unsecured notes due 2027 and USD 300 million 5.45 per cent senior unsecured notes due 2026 at 'BB-'.

"The negative outlook reflects the risk of potential weakening in the standalone credit profile (SCP) of HMEL's parent, Hindustan Petroleum Corporation Ltd (HPCL), of 'BB' due to prolonged weakness in demand and refining margins beyond Fitch's current expectations," it said in a statement.

Fitch expects demand for petroleum products to gradually recover during FY 2020-21 and reach the pre-pandemic levels during the following year.

It also revised its assessment of HMEL's standalone profile to 'B+' from 'BB-' due to expectations of weaker gross refining margins (GRMs), which will undermine its financial profile.

"We expect HMEL's net leverage (total net debt / operating EBITDA) to remain well above 5.0x over FY21-FY22 on weakness in industry-wide refining margins and rising debt levels from its capex," the rating agency said.

Fitch expected HMEL's refinery throughput to fall to around 10 million tonnes (MT) in FY21 from around 12.3 MT in FY20, due to a significant fall in demand for transportation fuel in India in Q1 FY21, and HMEL's planned maintenance shutdown.

"We expect demand to improve gradually and support recovery in utilisation to pre-pandemic levels during H2 FY21," it said. "We cut HMEL's GRM estimates for FY21 by around 20 per cent as we expect product cracks to remain weak until global economic growth recovers materially from the coronavirus crisis."

It expected HMEL's refining margins to improve in FY22 as demand recovers.

HMEL plans to invest Rs 8,200 crore over FY21-FY22 for its petrochemical project.

"We now expect the project's completion to be delayed by 3-4 months due to the nationwide lockdown and related labour shortages and logistical challenges, and a more gradual stabilisation of the plant after commissioning," Fitch said.

Fitch believes that risks of HPCL's SCP being revised lower have increased considerably, given the coronavirus-induced drop in demand for refined products, continued oversupply in the regional market, and HPCL's large capex to expand capacity at its refineries, despite lower capex on greenfield projects.

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Mon, May 11 2020. 17:52 IST