A ratings downgrade for India has rubbed off on Oil and Natural Gas Corporation (ONGC) and its subsidiary ONGC Videsh (OVL).
In a statement, Fitch Ratings said it has issued a Long-Term Foreign-Currency Issuer Default Rating (IDR) of 'BBB-' to Oil and Natural Gas Corporation (ONGC). This rating has also been issued to OVL's subsidiary, ONGC Videsh Vankorneft, and the medium-term note programme co-issued by the three entities.
This makes it harder for the two to raise money for financing their project needs. OVL is currently said to be in the process of raising $500 million to repay some existing debt in an exercise that will trim the overall finance cost for the company.
“ONGC’s ratings are constrained by the ratings of the state of India (BBB-/Negative), its majority owner, according to Fitch's Government-Related Entities Rating Criteria, and the Negative Outlook reflects that of the Indian sovereign,” a Fitch statement said.
Fitch also rated ONGC's Standalone Credit Profile (SCP) at 'bbb+'. This is reflecting its scale as the largest oil and gas producer in India, significant reserves and production and a diversified business model comparable with that of peers rated in the 'A' category by Fitch.
“Fitch has assessed ONGC's standalone credit profile as two notches higher than the assigned rating. However, ratings are constrained by the sovereign rating of India (BBB-/Negative) which is normal practice,” an ONGC official told Business Standard.
“ONGC and its subsidiaries OVL/ OVVL bonds were earlier rated by two leading agencies (Moody’s and S&P) and with this initiation of ratings by Fitch, investors of these bonds get benefit of perspective of all the three top international rating agencies,” the official added.
Commenting on the operational performance of ONGC, Fitch said, “We believe ONGC's vertically integrated oil and gas operations help reduce cash flow volatility. It has production across India and globally. It is integrated into the refining, marketing and petrochemical business through controlling stakes in Hindustan Petroleum Corporation and other subsidiaries. We expect the downstream business to make up around 30 per cent of consolidated earnings before interest, tax, depreciation, and amortisation (EBITDA) in the financial year ending March 2022 to financial year 2023-2024.”
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