State-run Bharat Petroleum Corp. Ltd (BPCL) has hit the international bond market to raise as much as $500 million, said two investment bankers, requesting anonymity.
BPCL, India’s second largest refiner and fuel retailer, will raise capital through the sale of foreign currency convertible bonds (FCCBs) to meet its capital expenditure, they added.
“BPCL is expanding its refining and petrochemicals operations. The fundraise will help the company meet the capex requirements for its expansion plans,” said the first investment banker. The bonds have been issued Baa2 rating by Moody’s. The tenure of the issue could, however, not be ascertained immediately. “The affirmation of BPCL’s ratings reflects our expectation that its credit profile will remain constrained by high shareholder returns despite its improving operating profile,” said Vikas Halan, senior vice president, Moody’s, adding that the company may moderate its dividend payments or adjust its capital spending over the next 12-18 months to improve its credit metrics.
Moody’s also expects BPCL to pay an interim dividend of ₹14 per share next month. The quantum of dividend is expected to be higher in the absence of a share buy-back.
“Although BPCL, unlike some of the other state-owned oil and gas companies in India, has not yet announced a share buyback, Moody’s expects the company will need to pay an interim dividend in February 2019 of at least ₹14 per share, equal to the interim dividend paid in February 2018,” the agency said.
On 13 December, Indian Oil Corp. Ltd (IOCL) had announced a buyback of over 297.6 million shares, besides offering an interim dividend of ₹6.75 per equity share. The same month also saw Oil and Natural Gas Corp. (ONGC) announcing a buyback for 1.97% of its equity shares.
Moody’s added that in the absence of a share buyback and given an increase in BPCL’s reported net profit, the interim dividend payable could be even higher than Moody’s current estimates. The agency expects that any such a move may further weaken the company’s credit metrics. Last August, BPCL had paid dividend of ₹7 per share for 2017-18.
The rating agency expects BPCL’s debt/earnings before interest tax depreciation and amortization (Ebitda) to remain at elevated levels of 2.7-2.8 times in the fiscal year ending March 2019, compared to 2.8 times in 2017-18.
BPCL’s operating profile has improved since the completion of its Kochi refinery in 2018. Its total refining throughput increased to 37.7 million tonnes in fiscal 2018 from 34.4 million tonnes in the previous financial year. It has also upgraded its refinery to use a higher proportion of heavy crude oil, positioning it well to benefit from the increasing differential between light and heavy crude oil.
Source: Mint