S&P affirms ONGC's senior unsecured notes at BBB-, outlook stable

22 Mar , 2021 By : kanchan joshi

MUMBAI: S&P Global Ratings on Monday affirmed state-owned oil producer Oil and Natural Gas Corporation’s (ONGC’s) senior unsecured notes at ‘BBB-’ with stable outlook as increasing adoption of renewable energy has raised risks for the longer-term profitability of global oil and gas producers.

However, ONGC's standalone credit profile has been affirmed 'BBB ' rating, which reflects S&P's expectations of improving financial ratios.

The agency said, to maintain the rating of 'BBB ' for its standalone credit profile, ONGC should continue with a conservative financial policy, given its weakened business position.

S&P said it expects industry risk for ONGC's exploration and production (E&P) business at moderately high.

"But in the case of ONGC, they believe the higher industry risk is offset by a faster-than-anticipated recovery in earnings and cash flows from its pandemic-hit lows" S&P Ratings Services said in a statement.

"Weak broader industry environment for the company will be overtaken by a faster-than-expected recovery in oil prices," S&P said. "We estimate the company will generate Rs45,000-Rs47,500 crore of operating cash flows in fiscal year ending March 31, 2021, and fiscal 2022 to Rs55000- Rs65000 crore higher than our earlier estimates."

It expects ONGC to maintain strong competitive position. The company has demonstrated good financial flexibility in scaling back such spending in fiscal 2021 amid an uncertain business environment.

"We will downgrade ONGC if we lower the sovereign credit rating. We do not expect to lower the rating on ONGC over the next 12-24 months due solely to the company's operating or financial performance" S&P said.

A lower rating would require ONGC's standalone credit profile of 'BBB ' to fall by at least three notches, which we consider highly unlikely.

"We could lower the standalone credit profile by one notch if we expect ONGC's ratio of FFO (funds from operations) to debt to fall below 40% on a consistent basis. This could happen if the company's capital spending, acquisitions or dividend are more than we expected or crude oil prices are lower than our current assumptions," it said.

ONGC is an India-based integrated oil and gas producer engaged in exploration, development, and production in the country and overseas. The Indian government held 60.41% stake in ONGC as of 31 December, 2020.