The outlook for Indian Oil Corporation Limited (IOCL), remains stable in spite of negative free cash flows, according to Moody’s Investors Service.

IOC’s leverage is likely to stay within the tolerance level of its ratings, even as the State-owned refiner promised higher shareholder returns and capital spending, Moody’s said.

The company had, last month, announced share buybacks and interim dividends which resulted in a combined total cash outlay of ₹12,300 crore, and increased its net borrowings by the same amount.

IOCL is in the international market to raise up to $1.5 billion by way of bonds.

This will reduce IOC’s cash flow to debt ratio to 23% for 2018-19 from 29% last fiscal but it will still remain well above the downgrade threshold of 10%-15% for its ba1 baseline credit assessment (BCA).

“The affirmation of IOCL’s ratings reflects our expectation that the company’s leverage will stay within the tolerance level of its ratings, despite negative free cash flow because of high shareholder returns and capital spending,” said Vikas Halan, senior vice president, Moody’s.

Moody’s cautioned that larger oil firms remain exposed to risk as the government has been looking to accelerate consolidation in the oil and gas sector, such that larger firms could be asked to acquire smaller ones. “IOCL’s ratings also remain constrained by uncertainty around government policy, especially with respect to fuel pricing,” he said.

At the same time, Moody’s has assigned a Baa2 rating to IOCL’s proposed USD- denominated senior unsecured notes.

The tenor and the coupon rates of the notes were not immediately known.

Separately, Fitch Ratings assigned IOCL US-dollar-denominated notes, a rating of BBB. The notes will rank on an equal footing with other senior unsecured borrowings of IOCL.

The rating of the notes is in line with IOC’s Long-Term Issuer Default Rating of ‘BBB-’ as they will be direct, unconditional and unsecured obligations of the company, said a Fitch statement.