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Global Credit Research - 02 Jun 2010
Hong Kong, June 02, 2010 -- Moody's Investors Service has today affirmed its A3 local currency issuer
and Baa2 foreign currency issue ratings on Gas Authority India Limited
(GAIL). The outlook on both ratings is stable.
The affirmation follows GAIL's announcement of FY2010 results,
which were in line with Moody's expectations. GAIL reported
EBITDA of Rs.60.8 billion, compared to Rs.51.4
billion in FY2009. Its subsidy burden also declined, by 25%
to Rs.13.3 billion, from Rs.17.8billion.
"We expect GAIL's financial profile to further improve following
the government's decision to allow it to charge 11.2 cents/mmbtu
for gas marketing margins under the Administrative Pricing Mechanism,"
says Jennifer Wong, a AVP / Analyst. "Marketing margins
should contribute approximately Rs.2 billion of EBITDA a year."
"GAIL has also been granted higher transmission tariffs for the
Vijaipur-Dadri pipeline. Despite the downward correction
in the tariff structure for its other existing pipelines, the overall
blended transmission tariff will increase as greater volume uses the new
infrastructure," adds Wong, also Moody's lead
analyst for GAIL.
"These developments have strengthened GAIL's baseline credit
assessment (BCA), which now maps to Moody's global scale of
A3," says Wong.
GAIL's BCA continues to reflect the following strengths: (1)
the company's dominant position in India's gas transmission sector;
(2) robust industry fundamentals; (3) stable and reliable gas transmission
business; and (4) high level of diversification and the synergies
apparent between the company's different business segments.
At the same time, the BCA also reflects (1) GAIL's large debt-funded
capex program to double its pipeline capacity and the associated risks
of cost overruns and delays in completion; (2) the earnings volatility
of GAIL's other non-regulated businesses, such as natural
gas trading and petrochemicals; (3) significant but declining off-balance
sheet liabilities; and (4) India's evolving regulatory framework,
including uncertainty tied to subsidy sharing.
As a government related issuer, GAIL's rating also reflects the
strong level of support from the Indian government according to Moody's
joint default analysis approach. The strong support reflects GAIL's
near-monopoly status and strategic importance in India's
However, Moody's now gives greater weight to GAIL's
high dependence on the government, in light of the company's
domestic market focus and the high degree of correlation between it and
the government, given its high reliance on the domestic market and
economic development in India.
Such high support and dependence have no impact on the final A3 local
currency issuer rating, which mainly reflects GAIL's standalone
credit strength. GAIL's Baa2 foreign currency issuer rating
is capped by India's country ceiling.
The stable outlook reflects Moody's expectation that GAIL's operating
and financial profiles will remain in line with its rating level.
Further, Moody's expects that GAIL will continue to generate
predictable cash flows for its core transmission and distribution business
due to its competitive position and make considerable progress implementing
its capex plan.
Upside potential for the rating in the near term is limited, given
the regulatory overhang and risk related to the company's expansion
However, upward pressure could evolve over time if the company can
implement its expansion program according to plan, while simultaneously
improving cash flow, such that RCF/Adjusted Debt surpasses 30-35%.
Downward rating pressure could arise if the company's credit quality
deteriorates due to increased subsidy sharing, or if it takes on
aggressive debt-funded capex plans, including investments
in the more risky E&P business. Similarly, downward pressure
could develop due to significant cash outflow to settle contingent liabilities
or adverse regulatory changes, such that RCF/Adjusted Debt falls
In addition, GAIL's ratings will likely be pressured in the
event of a downgrade to India's sovereign rating -- which is
unlikely given Moody's positive outlook.
The last rating action with respect to GAIL was taken on February 17,
2010, when Moody's assigned its Baa2 foreign currency issuer rating
with a stable outlook.
The principal methodology used in rating GAIL was "Moody's Rating
Methodology for Regulated Electric and Gas Utilities," August
2009, which can be found at www.moodys.com in the
Rating Methodologies sub-directory under the Research & Ratings
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found in the Rating Methodologies sub-directory
on Moody's website.
Established in 1984, Gas Authority India Limited is the largest
natural gas transmission company in India, with interests in transmission,
processing, and downstream petrochemicals. GAIL operates
over 7,000km of natural gas pipeline, which accounts for approximately
79% of all the gas transported in India. In addition,
it operates 1,900km of LPG pipeline, seven LPG plants with
a total production capacity of 1.4mmtpa, and a 410,000
tpa petrochemical facility. It also participates in 30 E&P
blocks in India and overseas.
Jennifer W. Wong
Asst Vice President - Analyst
Corporate Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 3551-3077
Moody's affirms GAIL's ratings
Philipp L. Lotter
Senior Vice President
Corporate Finance Group
Moody's Singapore Pte Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (65) 6398-8308
No Related Data.
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