Singapore, June 02, 2020 -- Moody's Investors Service has downgraded the long-term issuer
ratings of the following eight non-financial companies:
1. Oil and Natural Gas Corporation Ltd. (ONGC)
2. Hindustan Petroleum Corporation Ltd. (HPCL)
3. Oil India Limited (OIL)
4. Indian Oil Corporation Ltd (IOCL)
5. Bharat Petroleum Corporation Limited (BPCL)
6. Petronet LNG Limited (PLL)
7. Tata Consultancy Services Limited (TCS)
8. Infosys Limited (Infosys)
The outlooks on all these ratings is negative.
In addition, Moody's has affirmed the long-term issuer
ratings of the following three non-financial companies:
9. Reliance Industries Limited (RIL)
10. UPL Corporation Limited (UPL Corp)
11. Genpact Limited (Genpact)
The outlook for RIL has been revised to negative from stable while the
outlooks for UPL Corp and Genpact remain stable.
Today's rating actions follow the downgrade of India's sovereign
rating to Baa3 negative from Baa2 on 1 June 2020.
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL424924
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_ARFTL424924
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
DOWNGRADE OF RATINGS 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 very sensitive
to a decline in the rating of their government owner given their close
links with the Government of India. As a result, each GRI
has been downgraded by one notch, consistent with the downgrade
of the sovereign rating.
The BCA of ONGC has also been downgraded by one- notch to baa3
for the same reason.
The BCA for OIL has been affirmed at baa3 while that of IOCL and BPCL
has been affirmed and confirmed, respectively at ba1.
The negative outlooks for the four GRIs reflect the negative outlook on
the sovereign rating.
The latest rating action on BPCL concludes the rating review initiated
on 26 November 2019 and reflects Moody's expectation that the Indian
government's proposed stake sale in the company is unlikely to conclude
over the next 3-6 months.
BPCL's rating will continue to incorporate Moody's assessment of
a high likelihood of extraordinary support from the Government of India
until the proposed divestment is completed.
In addition to the negative outlook on the sovereign, the negative
outlook on BPCL's rating also reflects Moody's view that both
its BCA as well as the support incorporated into the rating could face
downward pressure, should the government sell its entire stake in
the company.
DOWNGRADE OF RATINGS 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 downgraded following the rating action on the sovereign and ONGC.
The downgrade of PLL with a negative outlook follows the rating actions
on its key counterparties, including IOCL and BPCL.
RATING ACTIONS FOR NON-GOVERNMENT RELATED ISSUERS -- TCS,
INFOSYS, RIL, UPL AND GENPACT
The ratings of TCS and Infosys are constrained to no more than two notches
above the sovereign rating. The sovereign downgrade to Baa3 negative
therefore results in the rating downgrades of TCS and Infosys to Baa1
negative from A3 negative.
The affirmation of RIL's Baa2 issuer rating reflects Moody's
view that its credit metrics remain appropriately positioned for its rating.
The change in RIL's outlook to negative from stable is in line with
the downgrade of the Indian sovereign rating with a negative outlook and
reiterates Moody's view that it cannot be rated more than one notch
above the Indian sovereign.
The affirmation of the Baa3 issuer ratings with a stable outlook for UPL
and Genpact reflects Moody's view that these entities can be rated
one notch above the Indian sovereign.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
ONGC
Given the negative outlook, the rating is unlikely to be upgraded
over the next 12-18 months. The outlook on the rating could
return to stable if the outlook on the Indian sovereign rating returns
to stable.
The rating and BCA will be downgraded if Moody's downgrades India's
sovereign rating.
While ONGC's BCA is currently constrained by the sovereign rating,
Moody's could downgrade ONGC's BCA if oil prices 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 downgrade include ONGC's RCF/net
debt falling below 15%-20% and EBIT/interest staying
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) as long as its BCA does not fall below ba3.
OIL
Given the negative outlook, the rating is unlikely to be upgraded
over the next 12-18 months. The outlook will return to stable
if the outlook on the sovereign rating returns to stable.
OIL's BCA will not be upgraded unless the sovereign rating is upgraded
and if there is a sustained improvement in oil prices.
OIL's rating and BCA will be downgraded if the sovereign rating
is downgraded.
OIL's issuer rating could also be downgraded to Ba1 if there is a change
in the relationship between OIL and the Indian government, resulting
in a lower expectation of extraordinary support.
The BCA could be downgraded to ba1 if (1) OIL makes any debt-funded
acquisitions or shareholder returns, or (2) its earnings and cash
flow generation remain weak because of a prolonged decline in oil prices.
Credit metrics indicative of such downward pressure include (1) adjusted
RCF/debt staying below 20%-25%, or (2) debt/proved
developed reserves increasing above $6 per barrel.
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) as long as its BCA does not fall below ba3.
IOCL
Given the negative outlook, the rating is unlikely to be upgraded
over the next 12-18 months. The outlook will return to stable
if the outlook on the sovereign rating returns to stable.
Upward pressure on IOCL's BCA is limited over the next 12-18 months
given the weak refining margin environment and the company's weak
cash flow coverage metrics. However, the BCA can be upgraded
to baa3 over the longer term if (1) there is a sustained improvement in
the regional refining margin environment, (2) there is clarity around
the government's policy with respect to the oil & 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 retained
cash flow (RCF)/debt — excluding inventory gains/losses —
above 20%, and debt/EBITDA below 2.5x on a sustained
basis.
An upgrade of IOCL's BCA to baa3 will not automatically 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 to Ba1 from Baa3; (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 to ba2 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 margins or the efficiency of its operations.
Credit metrics indicative of a deterioration in its BCA include RCF/adjusted
debt — excluding inventory gains/losses — below 10%-15%,
and debt/EBITDA above 3x.
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) as long as its BCA does not fall below ba3.
BPCL
Given the negative outlook, the rating is unlikely to be upgraded
over the next 12-18 months. However, the outlook could
return to stable if (1) the outlook on India's sovereign rating
returns to stable; and (2) the uncertainty around ownership and management
control along with the potential liquidity challenge is addressed.
Upward pressure on BPCL's BCA is limited over the next 12-18 months
given the weak refining margin environment and the company's weak
cash flow coverage metrics. Upward pressure on the BCA may emerge
over a longer term if there is an improvement in BPCL's credit metrics
because of a reduction in borrowings through free cash flow generation.
An upgrade of the BCA will also require that the uncertainty around company's
ownership and management control, along with the potential liquidity
challenge, being addressed.
Credit metrics indicative of a higher BCA include retained cash flow (RCF)/debt
— excluding inventory gains/losses — above 20% and
debt/EBITDA below 2.5x on a sustained basis.
BPCL's issuer rating could be downgraded 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)
the government's stake in BPCL declines 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 to ba2 if the company's cash
flow coverage credit metrics deteriorate. This may occur if BPCL
maintains or increases its already 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
margins or in the efficiency of its operations.
Credit metrics indicative of a lower BCA include RCF/adjusted debt —
excluding inventory gains/losses — below 15% and debt/EBITDA
above 3x.
A BCA downgrade will not automatically result in a rating downgrade.
BPCL's rating can be maintained at the current level (assuming no change
in the support assumptions or the sovereign rating) as long as its BCA
does not fall below ba3.
BPCL's rating and BCA will also face downward pressure if the government
moves ahead with the plan to sell its entire stake in the company,
which would result in removal of the support incorporated in the company's
rating.
HPCL
Given the negative outlook, the rating is unlikely to be upgraded
over the next 12-18 months. The outlook on the rating could
return to stable if the outlook on ONGC and the Indian sovereign rating
returns to stable.
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 standalone
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
into HPCL's rating.
HPCL's standalone credit quality will weaken if its credit metrics deteriorate
as a result of (1) a substantial loss of market share in petroleum product
distribution; (2) low marketing margins due to higher competition
from non-government players; (3) a decline in its refining
margins or capacity utilization levels; and (4) a large debt-funded
capital spending plan.
Credit metrics indicative of a weaker standalone credit quality include
RCF/adjusted debt below 15% and adjusted debt/EBITDA above 3.5x
on a fully consolidated basis.
PLL
Given the negative outlook, the rating is unlikely to be upgraded
over the next 12-18 months. However, the outlook could
return to stable if the outlooks on the ratings of its key offtakers return
to stable, which could in turn be the result of the outlook on India's
sovereign rating returning to stable.
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.
TCS
Given the guidelines regarding the differences between government and
corporate ratings (see our 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, which is unlikely given the negative
outlook.
A downgrade of India's sovereign rating to Ba1 will immediately cause
a downgrade of TCS' rating.
TCS' Baa1 rating could also be downgraded if: (1) TCS provides support
to its affiliate companies other than through its parent, Tata Sons
Ltd.; (2) TCS undertakes 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 downgrade
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 our 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, which is unlikely given the negative
outlook.
A downgrade of India's sovereign rating to Ba1 will immediately cause
a one-notch downgrade to Infosys' rating.
Infosys' Baa1 rating could also be downgraded 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. Specific credit metrics
indicative of a 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.
RIL
Given the negative outlook, the rating is unlikely to be upgraded
over the next 12-18 months. The outlook could return to
stable if the outlook on India's sovereign rating returns to stable.
RIL's rating could be downgraded if the Indian sovereign rating
is downgraded.
RIL's rating could also be downgraded if its credit metrics deteriorate
as a result of (1) protracted weakness in its operations which results
in significantly lower earnings beyond Moody's expectations,
or (2) delay or cancellation of planned stake sales in its business segments,
or (3) large debt-funded capital spending or acquisitions.
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.
UPL Corp
UPL's ratings are capped at one notch higher than the Indian sovereign.
As such, a positive rating action would require a return in the
outlook on India's sovereign rating to stable.
An upgrade would also require tangible benefits following the seamless
integration of the company's 2018 acquisition of Arysta Life Sciences,
with EBITDA margins at the higher end of the 22%-25%
range, debt/EBITDA leverage well below 2.5x and consistent
positive free cash flow generation, all on a sustained basis.
A downgrade of the Indian sovereign below Ba1 will result in an immediate
downgrade of UPL's Baa3 issuer rating, given the one-notch
ratings cap.
UPL's ratings could also be downgraded if EBITDA margins fall below
18%, gross debt/EBITDA leverage remains above 3.5x
and net debt/EBITDA exceeds 2.7x, all on a sustained basis.
Any large debt-funded acquisitions that materially weaken the company's
financial profile would also pressure the ratings.
The ratings incorporate Moody's assumption that UPL Corp remains
an integral part of UPL Group and that the significant inter-linkages
between the two continue. Therefore, any further material
divestiture in UPL Corp by UPL Group, or any significant increase
in dividend payments by UPL Corp, will be viewed negatively.
As the junior subordinate hybrid debt rating is positioned relative to
other ratings of UPL, (1) a change in UPL's senior unsecured rating;
or (2) a reevaluation of its relative notching could affect the Ba2 junior
subordinate hybrid debt rating.
Genpact
Upward pressure on Genpact's rating is limited as long as the sovereign
rating outlook is negative as Genpact cannot be rated more than one notch
above the sovereign. If the outlook on sovereign rating is revised
to stable, Moody's could upgrade the ratings of Genpact if
it continues its organic and inorganic growth while maintaining prudent
financial metrics such that it achieves annual revenues of at least $5
billion.
An upgrade would also require a shift in its business mix, such
that digital revenue accounts for a higher portion of total revenues,
or new contract wins, resulting in an increase in its EBITA margins
to high teens in percentage terms. An upgrade of the BCA will also
require that the uncertainty around company's ownership and management
control, along with the potential liquidity challenge, being
addressed.
Specific credit metrics indicative of an upgrade include (1) adjusted
debt/EBITDA below 1.5x-2.0x, and (2) free cash
flow/total debt in excess of 35% on a sustained basis.
Moody's could downgrade Genpact's rating if overly aggressive business
acquisitions or higher-than-expected shareholder distributions
cause the company's gross adjusted leverage to exceed 3.25x or
net leverage on a reported basis to exceed 2.0x on a sustained
basis.
At the same time, any departure from the company's current financial
policies, resulting in a weakening of Genpact's financial profile,
would also strain the ratings.
Downward rating pressure on Genpact will also emerge if India's
sovereign rating falls below Ba1.
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_ARFTL424924
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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
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.
Kaustubh Chaubal
VP - Senior Credit Officer
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
Sweta Patodia
Analyst
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 307
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
