Fitch has affirmed on Indian Oil Corporation Ltd (IOC) ‘BBB-‘ rating, indicating that expectations of default risk are currently low. “Fitch equalises IOC’s rating with that of its largest shareholder, the state of India (BBB-/Stable) due to their strong operational and strategic linkages,” the credit rating agency said in a statement. Government of India holds 58.6 per cent stake in IOC.
The rating signifies that the capacity for payment of financial commitments is considered adequate but adverse business or economic conditions are more likely to impair this capacity. Fitch believes the linkages remain strong despite the deregulation of diesel prices in 2014. IOC however continues to retail kerosene at government-prescribed prices that are lower than market prices.
“Fitch may reassess the linkage of IOC with the state, as per Fitch’s Parent and Subsidiary Linkage methodology, if the state oil marketing companies’ policy role weakens due to further deregulation of petroleum products,” it said. While assessing the linkages, Fitch will also consider the government’s commitment to maintaining market-based prices for already deregulated products when oil prices increase.
The lower oil prices and deregulation of diesel have significantly improved IOC’s finances. Fitch assessed the company’s standalone credit profile at ‘BB+’ which indicates an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time.Share This