Diesel price hike credit +ve for refiners, OMCs
New Delhi   21-Sep-2012

Moody’s says debt cost of IndianOil, BPCL, HPCL to drop

Credit rating agency Moody’s Investors Service said that while the recent hike in diesel price by Rs five per liter and the cap on supply of LPG cylinders to six during the year, are credit positive for the upstream companies and refiners, the overall subsidy burden on petrol products will still rise by 23 per cent to Rs 1.7 lakh crore during the financial year ending March 2013. The increased retail price will lower the total amount of the fuel subsidy by about Rs 20,000 crore for the remaining tenure of the present financial year ending March 2013. “It is now expected the fuel subsidy for the year will rise by 23 per cent to Rs 1.7 lakh crore versus Rs 1.4 lakh crore last year. Our earlier estimate was Rs 1.9 lakh crore prior to the governments’ policy initiative,” said the report.

If the government rolls back a part of the hike, as some coalition partners and members of opposition parties have demanded, the decline in subsidies will be smaller. “The total amount of the fuel subsidy will exceed our estimate if the rupee continues to depreciate or international diesel prices increase further,” the report added.

The government reimburses subsidies to state-owned oil refining and marketing firms with a lag of up to six months. In the interim, companies such as IndianOil, Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL) need to borrow money to make up the void in their cash flows caused by selling auto fuels and cooking gas below cost. Moody’s now expects IndianOil’s debt balance for the financial year to be Rs 1 lakh crore, compared with our previous estimate of Rs 1.1 lakh crore. As a result, IndianOil will save interest costs of about Rs 500 crore. “On the whole, the company’s retained-cash-flow-to-debt ra¬tio for the year is likely to improve marginally, by about 100 basis points, although it will still remain below 10 per cent,” the report said.

The report said ONGC’s subsidy burden will also come down by about Rs 6,500 crore for the year, which will consequently lower the shortfall in its expected revenue and EBITDA by the same amount.

We expect ONGC to share about 32 per cent, same as the last financial year, of the total subsidy for the full financial year, which means the firm’s share of the subsidy burden will still be about Rs 54,000 crore for the present financial year.

The increase in the retail diesel price is the first since June 2011. Since then, import parity prices, which are used as a reference to calculate the subsidies, have risen by nearly 25 per cent because of higher golbal diesel prices and the weak rupee. But the near double-digit inflation and the political conseq-uences of pushing thro¬ugh unpopular reforms have kept the frequency of price hikes low, the report added.