Fitch has lowered its outlook on the long-term Issuer Default Ratings (IDR) of six state-owned entities to negative from stable. The PSUs whose rating outlook have been revised include, Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL), Oil India Limited (OIL), GAIL (India), Power Grid Corporation of India and NTPC. The global rating agency, however, affirmed the companies' rating at 'BBB-'.
Fitch has also revised the outlook on Hindustan Petroleum Corporation Limited (HPCL) to negative from stable, and affirmed the long-term IDR at 'BBB-'.
The rating action follows the revision of the outlook on India's 'BBB-' sovereign rating to negative from stable on June 18, 2020.
According to Fitch, ratings of IOC and BPCL are equalised with those of the sovereign given the strong likelihood of support. The standalone credit profiles (SCPs) of IOC and BPCL are assessed at 'bb+'.
GAIL's and Power Grid's ratings are stronger than that of the sovereign at 'bbb' and 'bbb+', respectively. However, their ratings are capped at the same level as that of the state, as per the criteria, it said. NTPC's IDR is at the same level as its SCP of 'bbb-' but now it is capped by the sovereign's weaker credit assessment, reflected in the negative outlook, it added.
Fitch aligned HPCL's rating with the credit profile of its largest shareholder, state-owned Oil and Natural Gas Corporation (ONGC), based on parent and subsidiary rating linkage criteria. HPCL's SCP is assessed at 'bb'.
"The outlook is negative and we therefore do not expect positive rating action. The outlook will be revised to stable if the sovereign's outlook is revised to stable provided the likelihood of support from the state remains strong," it said.
Fitch expects India's GDP to contract by 5 per cent in the fiscal year ending March 2021 (FY21) following strict lockdown measures imposed since March 25, 2020 to curb the spread of the coronavirus. It forecasts the economy to recover and expand by 9.5 per cent in FY22, mainly driven by a low-base effect.
"The negative outlook on India reflects the country's weakened growth prospects and challenges associated with a high public-debt burden," Fitch Ratings said in a report released on June 22.
According to Fitch, India's fiscal metrics have deteriorated significantly, despite the government's expenditure restraint, due to the impact of the severe growth slowdown on revenue, the fiscal deficit and public-sector debt ratios. It pegs general government debt to jump to 84.5 per cent of GDP in FY21 from an estimated 71 per cent of GDP in FY20.
Weak implementation of fiscal rules stipulated in the Fiscal Responsibility and Budget Management Act contributed to Fitch's view that a speedy fiscal improvement after the pandemic recedes is unlikely.