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ONGC seeks US$750m through unsecured notes

No impact on credit metrics, says S&P


No impact on credit metrics, says S&P



Oil and Natural Gas Corp (ONGC) of India is raising US$750 million through proposed senior unsecured notes for capital expenditure, refinancing, working capital, and general corporate purposes.

Though ONGC’s overseas hydrocarbon reserves are in geopolitically risk areas, Russia and Mozambique, the Indian Government support gives it strong standing in the financial markets for raising the money.

“In our opinion, the proposed notes will not have any major impact on ONGC’s credit metrics,” said S&P Global Ratings on 20 Nov 2019, having assigned its ‘BBB-‘ long-term issue rating to ONGC’s proposed senior unsecured notes.

The company’s financial performance in first-quarter 2019 was largely on track with expectations. S&P expects ONGC’s EBITDA (adjusted for leases and pensions) to be Rs.870 billion-Rs.890 billion for the current fiscal year until March 2022.

Cash flow from refineries will compensate to some extent lower EBITDA from crude production, due to lower oil prices expected over fiscal 2021 and beyond.

“We expect total debt at Rs.1.2 trillion-Rs.1.3 trillion in the same period.

“We believe ONGC’s ratio of funds from operations (FFO) to debt will likely remain at 46%-48%, dropping in fiscals 2021-2022,” said S&P.

The ratio is lower compared with fiscal 2019, when EBITDA was supported by higher oil prices in the major part of the year with adjusted debt contained at Rs.1.16 trillion. ONGC’s FFO-to-debt ratio in fiscal 2019 was about 64.3%.

The rating on ONGC reflects the company’s strong competitiveness as one of the largest exploration and production companies in Asia.

The company’s large 2P (proven plus probable) reserves, good vertical integration of production, refinery, and retail segments, and its status as the national oil company in India supports its business position.

Although more than 60% of its reserves are in India, the rest are in somewhat high-risk geographies–Russia and Mozambique–where geopolitical risks could dampen production and access to cash flows, thus limiting the company’s rating strengths, S&P pointed out.

“We continue to assess ONGC’s stand-alone credit profile as ‘a-‘. Our rating on the company is constrained by the sovereign credit rating on India (BBB-/Stable/A-3), based on our view that ONGC could face extraordinary government intervention,” said the rating agency.

Under its criteria for government-related entities, S&P believes there is a very high likelihood of extraordinary government support to the company.

“Our stable outlook on ONGC reflects the outlook on the sovereign credit rating on India and the company’s sensitivity to any potential government intervention,” said S&P.

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