Moody’s Investors Service has maintained its Baa3 positive outlook on state-owned downstream company Indian Oil Corporation (IOC), despite the 10 per cent stake sale in the company by the government through an offer for sale.
“The government will retain its majority stake in the company after the stake sale, and as such does not affect our assessment of sovereign support for IOC,” Moody’s Vice President and Senior Credit Officer Vikas Halan said.
“We will reassess the level of government support incorporated in the company’s ratings only if the government’s shareholding falls below 51 per cent, or if there are other indicators of a change in the relationship between the government and IOC,” Halan said. However, we see this as an unlikely scenario, given the strategic importance of IOC as the country’s largest downstream oil company with a 31 per cent share of the domestic refining capacity, Halan added.
Moody’s would consider raising IOC’s baseline credit assessment (BCA) if retained cash flow/debt exceeds 15 per cent on a sustained basis. However, a raising of IOC’s BCA will not automatically lead to a ratings upgrade, which will require an upgrade of the sovereign rating, Moody’s Investors Service said.
IOC’s BCA could be lowered if its credits metrics deteriorate as a result of a higher than expected increase in the fuel subsidy burden or a large debt-funded expansion or acquisition or a sustained decline in refining margins or the efficiency of its operations, Moody’s said.
IOC’s issuer rating could come under downward pressure if the sovereign rating is downgraded or if the government makes changes to the subsidy framework that negatively affect IOC.