Singapore, October 06, 2021 -- Moody's Investors Service has affirmed the long-term issuer
ratings of the following 9 non-financial companies:
1. Tata Consultancy Services Limited (TCS)
2. Infosys Limited (Infosys)
3. Reliance Industries Limited (RIL)
4. Oil and Natural Gas Corporation Ltd. (ONGC)
5. Petronet LNG Limited (PLL)
6. UltraTech Cement Limited (UltraTech)
7. Oil India Limited (OIL)
8. Indian Oil Corporation Ltd (IOCL)
9. Hindustan Petroleum Corporation Ltd. (HPCL)
The outlooks on all these ratings have been changed to stable from negative.
Moody's has also affirmed the Baa3 long-term issuer rating
of Bharat Petroleum Corporation Limited (BPCL). The rating outlook
remains negative.
Today's rating actions follow the affirmation of India sovereign's
Baa3 rating and a change in rating outlook to stable from negative on
5 October 2021.
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL455749
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL455749
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
Principal Methodologies and Models Used
RATING ACTIONS FOR GOVERNMENT-RELATED ISSUERS - ONGC,
OIL, IOCL and BPCL
Under Moody's joint default analysis approach for government-related
issuers (GRIs), government support is one of the key considerations
in GRIs' ratings. The ratings of these four GRIs are sensitive
to a change in the rating of their government owner given their close
links with the Government of India. As a result, Moody's
has affirmed the Baa3 issuer rating of each GRI, consistent with
the affirmation of the India sovereign's Baa3 rating.
The baseline credit assessment (BCA) for all the four entities has also
been affirmed at the existing level.
Moody's has also changed the outlook for ONGC, OIL and IOCL
to stable from negative in line with the change in sovereign outlook.
The outlook on BPCL's ratings remains negative and reflects the
uncertainty around its ownership, capital structure, liquidity
and management control given the ongoing process by the government to
divest its entire stake in the company.
RATINGS AFFIRMATION AND CHANGE IN OUTLOOK FOR GOVERNMENT-LINKED
ISSUERS - HPCL and PLL
HPCL's rating incorporates Moody's expectation of support from the Government
of India through ONGC, and has, accordingly, also been
affirmed at Baa3 and its outlook changed to stable from negative following
the rating action on the Indian sovereign and ONGC.
The affirmation of PLL's Baa3 issuer rating and a change in its
outlook to stable from negative follows the rating actions on its key
counterparties, including IOCL and BPCL.
RATING ACTIONS FOR NON-GOVERNMENT RELATED ISSUERS --
TCS, Infosys, RIL, and UltraTech
The ratings of TCS and Infosys are constrained to no more than two notches
above the sovereign rating, while RIL's issuer rating is capped
at one notch above the sovereign rating. The affirmation of India
sovereign's Baa3 rating therefore results in the rating affirmation
of TCS' and Infosys' Baa1 issuer ratings and RIL' Baa2
issuer rating.
The outlook for all three entities has been changed to stable from negative
in line with the change in sovereign rating outlook.
UltraTech's rating is capped at the sovereign rating, and
hence, its issuer rating has been affirmed at Baa3 and outlook changed
to stable from negative, in line with the sovereign rating outlook.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
ONGC
ONGC's BCA and issuer rating can be upgraded if (1) India's sovereign
rating is upgraded; (2) Moody's assesses that its liquidity
and financial policy can support a rating higher than the sovereign rating;
and (3) oil and gas prices improve such that the company's credit profile
is supportive of a higher BCA.
Credit metrics supportive of a higher BCA include retained cash flow (RCF)/net
debt of at least 20%-25% and EBIT/interest of 5x-6x.
ONGC's rating and BCA will be downgraded if India's sovereign rating is
downgraded. ONGC's issuer rating could also be downgraded
if the government's stake in the company is reduced to below 51%
or government control is reduced by some other means, which would
require a reassessment of the level of support incorporated into the company's
ratings.
Although ONGC's BCA is currently constrained by the sovereign rating,
Moody's could downgrade the BCA if oil prices decline and remain
weak for a prolonged period and the company continues to pursue high shareholder
returns. Downward pressure on ONGC's BCA will also arise if the
company embarks on large debt-funded acquisitions.
Credit metrics indicative of a BCA downgrade include ONGC's RCF/net debt
falling below 15%-20% and EBIT/interest remaining
below 4x-5x.
A BCA downgrade will not automatically result in a rating downgrade.
ONGC's rating can be maintained at the current level (assuming no change
in the sovereign rating) if its BCA does not fall below ba3.
OIL
OIL's issuer rating will be upgraded if the sovereign rating is upgraded.
OIL's BCA can be upgraded to baa3 over the longer term if oil and
gas prices improve such that the company's credit profile is supportive
of a higher BCA.
Credit metrics indicative of such upward pressure on OIL's BCA include
its adjusted RCF/net debt remaining above 20%-25%
or EBIT/interest expense increasing above 5x-6x.
An upgrade of OIL's BCA to baa3 will not result in an upgrade of its issuer
rating.
OIL's issuer rating will be downgraded if (1) the sovereign rating is
downgraded; (2) if its BCA is downgraded to below ba3; (3) the
government's stake in the company is reduced to below 51% or government
control is reduced by some other means, which would require a reassessment
of the level of support incorporated into the company's ratings
OIL's BCA will be downgraded to ba2 if OIL makes further debt-funded
acquisitions or high shareholder payments, or its earnings and cash
flow generation weaken because of a prolonged decline in oil prices.
Credit metrics indicative of such downward pressure include OIL's adjusted
RCF/net debt remaining below 15%-20% or EBIT/interest
expense falling below 4x-5x.
A BCA downgrade will not automatically result in a rating downgrade.
OIL's rating can be maintained at the current level (assuming no change
in the sovereign rating) so long its BCA does not fall below ba3.
IOCL
IOCL's issuer rating will be upgraded if the sovereign rating is upgraded.
IOCL's BCA can be upgraded to baa3 if (1) there is a sustained improvement
in the regional refining margin environment, (2) there is clarity
around the government's policy regarding the oil and gas sector,
and (3) IOCL's credit metrics improve because of a reduction in borrowings
through free cash flow generation.
Credit metrics indicative of an improvement in IOCL's BCA include RCF/debt
above 15%, and debt/EBITDA below 3.5x on a sustained
basis.
An upgrade of IOCL's BCA to baa3 will not result in an upgrade of IOCL's
issuer rating.
Moody's could downgrade IOCL's issuer rating if (1) India's sovereign
rating is downgraded; (2) the government makes adverse changes to
the subsidy framework; (3) IOCL's BCA is downgraded to below ba3;
or (4) the government's stake in IOCL is reduced to below 51% or
government control is reduced by some other means, which would require
a reassessment of the level of support incorporated into the company's
ratings.
Moody's would downgrade IOCL's BCA if the company's credits metrics deteriorate
as a result of (1) a higher-than-expected increase in the
fuel subsidy burden; (2) a large debt-funded expansion,
acquisition or dividend payment; or (3) a sustained decline in refining
and marketing margins or the efficiency of its operations.
Credit metrics indicative of a deterioration in its BCA include RCF/adjusted
debt below 8%-10%, and debt/EBITDA above 4.5x.
A BCA downgrade will not automatically result in a rating downgrade.
IOCL's rating can be maintained at the current level (assuming no change
in the sovereign rating) so long its BCA does not fall below ba3.
BPCL
Given the negative outlook, a rating upgrade is unlikely.
A change in outlook to stable will require the conclusion of the sale
of government stake in the company such that the support incorporated
in BPCL's rating is maintained. On the other hand,
the rating will be downgraded if the government sells it entire stake
resulting in elimination of the support incorporated in the rating.
A sale of government's entire stake in BPCL to a buyer with weak
credit quality or significant credit negative changes to BPCL's
post acquisition capital structure or financial profile could also put
downward pressure on the rating.
BPCL BCA can be upgraded if (1) there is a sustained improvement in the
regional refining margin environment, (2) there is clarity around
the government's policy regarding the oil and gas sector, and (3)
BPCL's credit metrics improve because of a reduction in borrowings through
free cash flow generation.
An upgrade of the BCA will also require greater clarity regarding the
company's ownership and management control, and its steps in managing
potential liquidity stress.
Credit metrics indicative of a higher BCA include retained cash flow (RCF)/debt
above 15% and debt/EBITDA below 3.0x on a sustained basis.
Moody's could also downgrade BPCL's issuer rating if (1) India's sovereign
rating is downgraded; (2) the government makes adverse changes to
the subsidy framework; (3) BPCL's BCA is downgraded to below ba3;
or (4) government's stake in BPCL is reduced to below 51% or government
control is reduced by some other means, which would require a reassessment
of the level of support incorporated into the company's ratings.
Moody's would downgrade BPCL's BCA if the company's cash flow coverage
credit metrics deteriorate. This may occur if BPCL maintains or
increases its high level of dividend payouts. Its credit metrics
may also weaken as a result of (1) a higher-than-expected
increase in the fuel subsidy burden, (2) a large debt-funded
expansion or acquisition, or (3) a sustained weakness in refining
& marketing margins or in the efficiency of its operations.
Credit metrics indicative of a lower BCA include RCF/adjusted debt below
10% and debt/EBITDA above 4.0x.
HPCL
HPCL's issuer rating could be upgraded if the government or ONGC's rating
is upgraded.
HPCL's standalone credit quality can improve (1) if there is a sustained
improvement in the regional refining margin environment, (3) there
is clarity around the government's policy regarding the oil and gas sector;
(4) its credit metrics improve because of a reduction in borrowings through
free cash flow generation.
Credit metrics indicative of a higher standalone credit quality include
RCF/debt above 15% and debt/EBITDA below 3.0x on a sustained
basis.
HPCL's issuer rating could be downgraded if (1) the government or ONGC's
rating is downgraded; (2) the government makes changes to the subsidy
framework that are negative for HPCL; (3) the company's stand-alone
credit quality deteriorates by more than two notches; or (4) ONGC's
ownership of HPCL declines below 51% or government control is reduced
by some other means, which would require a reassessment of Moody's
expectation of the extraordinary support that is currently incorporated
in HPCL's rating.
HPCL's standalone credit quality will weaken if its credit metrics deteriorate.
This may occur if HPCL maintains or increases its high level of dividend
payouts. Its credit metrics may also weaken as a result of (1)
a higher-than-expected increase in the fuel subsidy burden,
(2) a large debt-funded expansion or acquisition, or (3)
a sustained weakness in refining & marketing margins or in the efficiency
of its operations.
Credit metrics indicative of a weaker stand-alone credit quality
include RCF/adjusted debt below 10% and adjusted debt/EBITDA above
4.0x on a fully consolidated basis.
PLL
PLL's rating could be upgraded if the ratings of its key off takers
are upgraded, which could be due to an upgrade of India's sovereign
rating.
PLL's rating could be downgraded if Moody's downgrades the ratings of
the company's key counterparties as a result of a downgrade of the sovereign
rating.
The rating could also be downgraded if the company makes any large debt-funded
acquisition or increases its capital spending significantly, resulting
in a deterioration in its credit metrics such that debt/EBITDA increases
above 3x or EBITDA/interest coverage falls below 4x.
RIL
Credit metrics indicative of a higher rating level include retained cash
flow (RCF)/net debt above 25%, net debt/EBITDA below 2.0x,
and EBITDA/interest above 7x, all on a sustained basis
However, RIL's ratings can be upgraded only if the sovereign
rating is upgraded because its ratings are capped at one notch above the
sovereign.
RIL's rating could be downgraded if the Indian sovereign rating is downgraded.
The credit metrics of RIL are extremely strong for its sovereign constrained
rating and only a very substantial deterioration in credit metrics could
put pressure on its fundamental credit profile. Such deterioration
could occur if (1) there is a protracted weakness in its operations,
which results in significantly lower earnings, or (2) RIL increases
its capital spending or makes large acquisitions or shareholder distributions
that substantially increases its net borrowings.
Credit metrics indicative of such a scenario include RCF/net debt below
20%, adjusted net debt/EBITDA above 3.0x, and
EBITDA/interest below 4x.
TCS
Given the guidelines regarding the differences between government and
corporate ratings (see Moody's Credit Policy paper titled Assessing
the Impact of Sovereign Credit Quality on Other Ratings, published
20 June 2019), TCS' rating will not be upgraded unless India's Baa3
sovereign rating is upgraded.
An upgrade of the Indian sovereign will be a precondition for any upgrade
of TCS' rating
Downgrade of India's sovereign rating to Ba1 will immediately cause a
downgrade of TCS' rating.
TCS's Baa1 rating will also experience downgrade pressure if: (1)
TCS provides support to its affiliated companies other than through its
parent, Tata Sons Ltd. (Tata Sons); (2) TCS undertakes
any material debt funded acquisitions or increases its returns to shareholders,
significantly undermining its credit profile; or (3) its operating
performance significantly deteriorates.
Specific credit metrics indicative of a lower rating include negative
free cash flow (after dividends, share repurchases, capital
spending and acquisitions) on a sustained basis or a significant weakening
in TCS' balance-sheet liquidity.
Infosys
Given the guidelines regarding the differences between government and
corporate ratings (see Moody's Credit Policy paper titled Assessing
the Impact of Sovereign Credit Quality on Other Ratings, published
20 June 2019), Infosys' rating will not be upgraded unless India's
Baa3 sovereign rating is upgraded.
The downgrade of India's sovereign rating to Ba1 will immediately cause
a one-notch downgrade to Infosys' rating.
Infosys' rating will also experience downward pressure if (1) it
undertakes material debt-funded acquisitions or increases returns
to shareholders that significantly undermine its credit profile,
or (2) its operating performance deteriorates significantly.
Key considerations that we would consider for a possible downgrade include
sustained negative free cash flow generation (after dividends, share
repurchases, capital spending and acquisitions) or a significant
weakening in the company's balance-sheet liquidity.
UltraTech
Given the guidelines regarding the differences between government and
corporate ratings (see Moody's Credit Policy paper titled Assessing
the Impact of Sovereign Credit Quality on Other Ratings, published
20 June 2019), UltraTech's rating will not experience any
upward pressure unless India's Baa3 sovereign rating is upgraded.
UltraTech cannot be rated higher than its country of incorporation,
India, given its limited revenue and cash flow diversity and high
reliance on domestic funding sources.
Therefore, an upgrade of the Indian sovereign rating will be a precondition
for any upgrade of UltraTech's ratings. Fundamental factors that
could exert upward rating pressure include: leverage, measured
by adjusted debt/EBITDA, below 2.0x; adjusted RCF/net
debt above 35%; continued positive free cash flow generation;
all on a sustained basis, as well as maintenance of strong balance-sheet
liquidity.
A downgrade of India's sovereign rating to Ba1 would lead to a downgrade
of UltraTech's ratings.
The ratings could also be downgraded if UltraTech loses market share such
that it leads to a significant deterioration in its credit profile.
Large debt-funded acquisitions or a significant increase in shareholder
returns could also have negative rating implications.
Fundamental factors that could exert downward pressure on the ratings
include: leverage above 3.0x; adjusted RCF/net debt
below 20%; or intensifying competitive pressure resulting
in an EBITDA margin below 20%, all on a sustained basis.
The ratings could also be subject to negative pressure should the amount
of secured debt in the company's capital structure fails to continue
to decline.
REGULATORY DISCLOSURES
The List of Affected Credit Ratings announced here are all solicited credit
ratings. Additionally, the List of Affected Credit Ratings
includes additional disclosures that vary with regard to some of the ratings.
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL455749
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• Rating Solicitation
• Issuer Participation
• Participation: Access to Management
• Participation: Access to Internal Documents
• Disclosure to Rated Entity
• Endorsement
• Lead Analyst
• Releasing Office
• Person Approving the Credit Rating
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead rating analyst and the Moody's legal entity that has issued
the ratings.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Sweta Patodia
Analyst
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Vikas Halan
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
