Bharat Petroleum’s Amalgamation of Subsidiaries to Improve Synergies

Fitch Ratings-Mumbai: Bharat Petroleum Corporation Limited’s (BPCL, BBB-/Negative) plan to amalgamate its wholly owned subsidiaries, Bharat Oman Refineries Limited (BORL) and Bharat Gas Resources Limited (BGRL), into the company will result in greater synergies, Fitch Ratings says. However, it will have no rating impact.

BORL owns and operates the Bina Refinery with an annual capacity of 7.8 million metric tons in India’s Madhya Pradesh state. All three of BPCL’s refineries will be under one entity after the amalgamation, which we expect will improve efficiency in terms of crude procurement, inventory management and hedging mechanisms.

BGRL, formed in June 2018, holds BPCL’s interests in the areas where it intends to build city-gas distribution (CGD) networks. BGRL has interests in 13 areas at various stages of development, some of which would start contributing to earnings over the next four-to-five years. We believe that after the amalgamation, BPCL will be able to optimize its business plan for retailing compressed natural gas at its CGD networks further in light of its 24% share of the number of Indian fuel retail outlets and the potential to transform them into holistic energy stations catering to multiple types of fuel needs.

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Fitch’s assessment of BPCL’s standalone credit profile fully consolidates BORL and BGRL, with credit metrics that have adequate headroom under the negative sensitivities. BPCL's rating is equalised with that of its largest shareholder, the Indian sovereign (BBB-/Negative), based on Fitch's Government-Related Entities Rating Criteria, due to the strong likelihood of government support. The Negative Outlook reflects that on the Indian sovereign.