ICRA downgrades IndianOil’s outlook to negative
New Delhi   28-Aug-2012

Rating agency ICRA has assigned a ‘negative’ rating to IndianOil’s long term bonds programme. This was due to the apprehension that the public sector refiner’s gross under recoveries could be as high as Rs 1.7 lakh crore in the current financial year,

“The negative outlook reflects ICRA’s concerns over IndianOil’s key credit metrics in the light of high crude oil prices, significant depreciation of the Indian rupee against the US dollar and faster than usual growth in the subsidised diesel demand,” the agency has said in a press release issued today.

It has estimated that if the crude oil prices and the rupee-dollar exchange rate stay where they are today, and if no price revisions happen for the subsidised fuels, then IndianOil’s gross under recoveries would be as high as Rs 1.7 lakh crore this year.

ICRA has recognised that the losses are borne partly by upstream oil companies and partly by the Government. However, the agency is concerned that the delays in cash compensation by the Government, lack of compensation for under-recoveries in petrol, sharp volatility in prices and exchange rates, combined with “tepid refining margins” have taken a heavy toll on key credit metrics of IndianOil.

“The record high under-recoveries could also stress the fiscal position of the Government of India, impairing its ability to support oil marketing companies,” the ICRA release said.

IndianOil reported net loss of Rs 22,451 crore for the first quarter of the current year, compared with net loss of Rs 3,719 crore in the same period last year. This was because of gross under-recoveries of Rs 17,485 crore in Q1 this year, against Rs 7,673 crore in the Q1 last year.

Oil marketing companies such as IndianOil, BPCL and HPCL are yet to receive cash compensation for the fourth quarter of last year.