Moody’s downgrades outlook for oil PSUs, financial institutions

Global borrowing costs may rise: BPCL

CHENNAI, 24/05/2011: Lube Oil Base Stocks Facility in the premises of Indian Oil Corporation, IOC's Lube Blending Plant at New Ennore High Road, Tondiarpet. Photo:R.Shivaji Rao

Credit rating agency Moody’s has downgraded the ratings outlook for top oil PSUs — Indian Oil Corporation Limited (IOCL), Hindustan Petroleum Corporation Limited (HPCL), Bharat Petroleum Corporation Limited (BPCL), Oil and Natural Gas Corporation Ltd. (ONGC), Oil India Limited (OIL) and Petronet LNG Limited (PLL) — besides IT majors Infosys and Tata Consultancy Services to ‘negative’ from ‘stable’. This, after it changed the outlook on India’s Baa2 sovereign rating to negative from stable.

“Ratings of IOCL, BPCL and OIL incorporate our expectation of support from the Indian government. Therefore, a downgrade of the rating of the sovereign to Baa3 from Baa2 will result in downgrade of the respective Baa2 ratings of these companies,” Vikas Halan, a Moody’s senior vice-president said.

BPCL Director-Finance N. Vijayagopal told

The Hindu , “This may lead to a marginal increase in our borrowing costs from the global markets. We are not planning to raise any funds from international markets soon.”

“Although the Baa1 rating of ONGC does not incorporate any uplift because of support from the Indian government, it is constrained at no higher than one notch above the sovereign rating. Therefore, a downgrade of the sovereign rating will also result in downgrade of the rating of ONGC. Further, the rating of HPCL, which also incorporates expectation of support from the Government of India, through ONGC, will also be downgraded if we downgrade the rating of ONGC and the sovereign,” said Mr. Halan, lead analyst for Indian oil and gas firms at Moody’s.

According to Kaustubh Chaubal, Moody’s Vice President — Senior Credit Officer, “Ratings for Infosys and TCS are constrained to no more than two notches above the sovereign rating. Therefore a sovereign rating downgrade will also result in downgrade of the A3 ratings of Infosys and TCS.”

SBI, HDFC Bank

Moody’s also revised the rating outlook for six financial institutions, including State Bank of India and HDFC Bank following the change in outlook of the sovereign ratings. EXIM India, HUDCO, IRFC and Hero Fincorp are the other four financial institutions which also saw change in outlook to ‘negative’.

The rating outlooks for Bank of India, Canara Bank, Oriental Bank of Commerce, Syndicate Bank and Union Bank of India were maintained ‘at stable’.