Oil India rating unchanged : Fitch
MUMBAI: Fitch Ratings has said that Oil India's ratings would remain unchanged following the revisions to how royalties on Indian-produced oil is calculated. The rating agency said that the resulting additional payments will lower the headroom under OIL's 'BBB-' standalone credit assessment. OIL's ratings are equalised to that of its majority owner, India (BBB-/Stable). Indian government has said that state-owned upstream oil producers must pay state royalties on the gross value of crude oil produced domestically, instead of the previous method of using the net price after discounts to state-run refiners. The new formula applies retrospectively from February 2014. "Fitch estimates OIL will need to pay a one-time royalty fee of around Rs 11.5 billion; amounting to about a quarter of its projected EBITDA for end-FY17,"the rating agency said. Fitch said that this, combined with payments for acquisitions of a share in Taas Yuriakh and Vankor from Russia's national oil company, Rosneft, will weaken OIL's leverage beyond what is comfortable for its standalone credit assessment, which is net debt/EBITDA of 2 times in FY17. But the leverage will improve in FY18 to below 2 times in the absence of large merger and acquisitions, even though the higher royalty payments will reduce the company's netback. The rating agency said that under the revised formula, OIL India's royalty charges would increase by $ 0.2 per barrel (bbl) at a crude price of around $50 per bbl.20-07-2016