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Business News » Companies News

OIL share buyback may weaken its financial profile: Fitch

"This, in our view, will drive up OIL's net debt levels in addition to its need to fund its negative free cash flows due to its plans for higher capex of about USD 600 million per year and dividends," the agency said.

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OIL share buyback may weaken its financial profile: Fitch
Oil India's (OIL) proposed share buyback is likely to weaken its financial profile as its net leverage may rise to about 2.5 times by the end of fiscal 2020, Image source: Zee Business
Written By: PTI
Updated: Sat, Dec 01, 2018
11:35 am
Mumbai, PTI
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Oil India's (OIL) proposed share buyback is likely to weaken its financial profile as its net leverage may rise to about 2.5 times by the end of fiscal 2020, according to Fitch Ratings.

This rate is higher than the rating agency's previous expectation of 2.2x (times), shrinking the already-low headroom for OIL's 'BBB-' standalone credit profile as Fitch's current negative rating norms for net leverage is 2.5 times.

On November 21, OIL announced its plans to buy back 4.45 per cent of its shares at a total cost of Rs 1,090 crore.

"This, in our view, will drive up OIL's net debt levels in addition to its need to fund its negative free cash flows due to its plans for higher capex of about USD 600 million per year and dividends," the agency said.

Fitch noted that it expects both domestic and overseas capex to rise over the next two to three years.

OIL aims to augment its domestic production and reserves and will also be required to contribute towards its share of the Mozambique liquefied natural gas development after the final investment decision is made, likely in mid-2019.

"We are not yet considering any benefit to OIL's financial or business profile from the higher capex over the next two to three years due to the uncertainty around its oil and gas exploration efforts and risks associated with the Mozambique asset," it said.

Watch Zee Business tweet video here:

प्रदूषण पर कैसे होगा कंट्रोल ? प्रदूषण पर आखिर क्यों कन्फूज है सरकार? जानने के लिए देखिए केतन जोशी की ये रिपोर्ट। @KetanZeebiz pic.twitter.com/k4eQ93Bdvd

— Zee Business (@ZeeBusiness) November 30, 2018

However, Fitch may consider a one-notch uplift to OIL's final rating if its standalone credit profile falls to 'BB+', it said. 

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TAGS:
Oil India Ltd (OIL)share buybacks
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