HYDERABAD: The proposed government stake sale plan in Bharat Petroleum Corporation Ltd (BPCL) is credit negative if sold to a private entity, said Moody’s. This is because if the entire 53.29 per cent government stake is sold to private players, the ratings agency may exclude government support to the state-run oil refiner’s ratings. Such a move could lead to a downgrade of BPCL’s ratings to Ba1, which is equal to its current Baseline Credit Assessment or its standalone credit strength. But this assumes that there are no changes to the fundamental credit profile, including Moody’s assessment of liquidity and refinancing risk.
On the other hand, if sold to another government entity, allowing the sovereign to continue appointing all of BPCL’s directors and have substantial control over its operations, Moody’s will continue to include support in BPCL’s ratings.
“A stake sale, whether to a non-government-owned company or a state-owned company will trigger a change of control on BPCL’s bonds, which will require the company to redeem its bonds within 45 days of the change of control being triggered. There is no ratings condition attached to the put option for bondholders. A bond redemption will increase BPCL’s refinancing risk significantly,” said Vikas Halan, senior vice-president, Moody’s.
Currently, BPCL’s outstanding foreign currency bonds are worth $1.7 billion, but any redemption could expose it to significant refinancing risks. As it is, Moody’s said, BPCL’s liquidity was already inadequate, with cash and cash equivalents at Rs 5,300 crore as on March 2019. This includes short-term investments of Rs 4,600 crore, against Rs 10,900 crore worth debt maturing over the next 15 months, including a portion of the long-term debt. At current share prices, BPCL’s (currently rated Baa2) stake is valued at about Rs 57,500 crore.
“Our support assessment reflects BPCL’s vital role in India’s oil and gas sector as the second-largest state-owned refining and marketing company in the country, accounting for 15 per cent of total installed refining capacity,” said Halan. The company distributes 21 per cent of petroleum products consumed in India as on March 2019. The support assessment also reflects the Centre’s significant control over BPCL’s business strategy through its ability to appoint all the directors on the board and its majority 53.29 per cent equity ownership, Moody’s added.