India Ratings has assigned Hindustan Petroleum Corporation Limited's (HPCL) INR10bn proposed bond issue a 'IND AAA' rating. The ratings reflect HPCL's majority ownership by the government of India (GoI), its position as one of the three public sector oil refining and marketing companies in India.
India Ratings has assigned Hindustan Petroleum Corporation's (HPCL) INR10bn proposed bond issue a 'IND AAA' rating. The ratings reflect HPCL's majority ownership by the government of India (GoI), its position as one of the three public sector oil refining and marketing companies in India and the dominant position of public sector companies (PSC) in the national oil industry. India Ratings equates HPCL's ratings to those of India (51.11% shareholding in HPCL), reflecting the company's strong linkage with, and strategic importance to, the state.
India Ratings expects the state to continue to provide support to HPCL, given its role as the government's extended arm for policy implementation. GoI's policy has been to set tariffs for some refined oil products at levels lower than market prices, leading to under-recoveries. However, GoI has ensured that downstream PSCs' net annual under-recoveries are kept under control through financial support and direction to upstream PSCs to supply feedstock at a discount. The government compensates downstream PSCs through direct budgetary support.
GoI's adhoc subsidy sharing mechanism has led to significant liquidity mismatches for the company thus prompting large amount of short-term borrowings, which , increased to about 80% of total borrowings in 9MFY13 from about 60%-65% over FY09-FY12. The budgetary support and upstream discounts accounted for about 80.3% of its gross under recoveries of INR277bn which resulted in HPCL reporting operating loss of about INR44.9bn in 9MFY13 (9MFY12: loss of INR14.7bn). However, larger budgetary support in Q4FY12 resulted in net profit of INR9.1bn for FY12.
In January 2013, GoI announced that bulk users of diesel will have to buy the fuel at market price while for retail use staggered increases were proposed to be effected every month to reduce the differential between market price and prevailing prices over a period of time, and thus reduce under recoveries.
Also, HPCL has easy access to external financing, which would provide a liquidity cushion, if required.
The ratings may be negatively affected if HPCL's linkages with the GoI are deemed by India Ratings to have weakened.
HPCL has a 6.5mmtpa refinery in Mumbai and a 8.3mmtpa refinery in Vishakapatnam. HPCL holds an equity stake of 16.95% in Mangalore Refinery & Petrochemicals Limited which has a capacity of 9mmtpa. In addition, HPCL has a 9mmtpa refinery at Bhatinda, Punjab under a JV which was commissioned in February 2012 and is ramping up its capacity to full utilisation. HPCL recorded consolidated revenues of INR1.6trn and operating EBITDAR of INR41bn in FY12.
HPCL's outstanding ratings:
- Long Term Issuer Rating: 'IND AAA'; Outlook Stable
- Four non-convertible debentures of INR10bn each (including the current proposed programme): 'IND AAA'
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