(The following was released by the rating agency)
SINGAPORE, October 12 (Fitch) Fitch Ratings has published
India's Bharat Petroleum Corporation Limited's (BPCL)
'BBB-'Foreign Currency Long-Term Issuer Default Rating with
Negative Outlook. The agency has also assigned BPCL a senior
unsecured rating of 'BBB-' and an expected rating of 'BBB-(EXP)'
to its senior unsecured USD notes.
The final rating on the notes is contingent on the receipt
of final documents conforming to information already received.
BPCL's rating is equalised with that of its 54.9% owner, the
state of India ('BBB- '/Negative), to reflect their strong
operational and strategic ties.
The Negative Outlook on BPCL's IDR reflects that of India.
Fitch views BPCL as one of government of India's (GoI)
socio-economic policy tools through its provision of essential
fuels at affordable prices. GoI's policy has been to set prices
for certain refined oil products - diesel, liquefied petroleum
gas (for domestic use) and kerosene (sold through the public
distribution system) - at levels that are lower than market
prices, which lead to under-recoveries for BPCL. However, GoI
has ensured that downstream public sector companies' (PSCs
including BPCL) annual net under-recoveries are kept under
control through direct budgetary support and by directing
upstream PSCs to supply feedstock at a discount.
The rating also reflects BPCL's position as one of the
three public sector oil refining and marketing companies in
India (the other two being Indian Oil Corporation (IOC, 'BBB-'/
Negative) and Hindustan Petroleum Corporation Limited), and the
three PSCs' dominant position in the national oil industry.
Despite the differences in the scale of the three Indian
PSC downstream companies - IOC accounts for 46% of India's
petroleum marketing against BPCL's 22% - the GoI has exhibited a
similar level of support to all three entities. GoI does not
prioritise or discriminate between the three entities in terms
of the support extended. The state of India holds majority stake
in all these entities and exercises significant management and
policy control. BPCL has low operating profitability due to the
net under recoveries and the cost of funding liquidity gaps
arising from late receipt of state subsidies.
BPCL's significant capex to increase refinery capacity and
operational efficiency has resulted in negative free cash flows
in the last five years to FY12 with the exception of FY11. Given
its further capex plans and continued net under recoveries, FCF
is likely to be negative in the medium term. However, Fitch
assesses that BPCL can maintain adequate liquidity due to cash
and cash equivalents on hand of INR78.3bn at FYE12 and its good
access to banks given its position as an important PSC.
WHAT COULD TRIGGER A RATING ACTION?
Negative: Future developments that may, individually or
collectively, lead to negative rating action include: - a
perceived weakening of BPCL's linkages with the state of India -
change in India's ratings
Positive: Any positive rating action on India will result
in a similar change to BPCL's ratings, provided the rating
linkages remain intact.
BPCL operates two refineries in Mumbai and Kochi with a
capacity of 12mmtpa and 9.5mmtpa, respectively. BPCL holds a
61.65% stake in Numaligarh Refinery Ltd (3mmtpa) and a 50% stake
in recently commissioned Bharat Oman Refinery Ltd (6mmtpa). BPCL
has also acquired minority stakes in 28 Exploration &Production
blocks (including 17 overseas). For FY12, consolidated revenue
was INR2,119bn and operating profit was INR48.1bn.