Covid-19, sovereign rating downgrade make six PSUs potential fallen angels: Moody’s

The downgrade of Petronet LNG with a negative outlook follows the rating actions on its key counterparties, including IOCL and BPCL.

The number of companies most at risk of losing their investment-grade ratings, or potential ‘fallen angels’, in Asia excluding Japan and Australia, climbed to 21 as of June 2 from eight at the end of 2019, Moody’s Investors Service said in a report on Tuesday, naming six Indian state-owned oil-and-gas companies on the list. Apart from lower earnings and cash flow caused by the global coronavirus shock, India’s sovereign rating downgrade accounts for the rise in the number of such companies.

Six companies from the oil and gas sector — Oil and Natural Gas Corporation (ONGC), Oil India (OIL), Indian Oil Corporation (IOCL), Bharat Petroleum Corporation (BPCL), Hindustan Petroleum Corporation (HPCL) and Petronet LNG — have become potential fallen angels so far in June, according to Moody’s. All six are now rated Baa3 negative and they account for around $1 billion of rated bonds maturing through 2021.

HPCL’s rating incorporates the rating firm’s expectation of support from the government of India through ONGC.

The downgrade of Petronet LNG with a negative outlook follows the rating actions on its key counterparties, including IOCL and BPCL. “That said, further ratings action on the final ratings of these six government-related or government-linked oil-and-gas companies will be driven by a downgrade of the sovereign rating and not a deterioration in their fundamental credit profiles,” the report said.

“Aside from the six Indian government-related or linked companies, these companies (potential fallen angels) operate in sectors most exposed to coronavirus disruptions, including auto, steel and REITs,” said Annalisa Di Chiara, Moody’s senior vice-president. Altogether, the 21 potential angels have around $3.3 billion of rated bonds maturing through 2021, with government-related or linked companies accounting for nearly one-third of this amount.