Global rating agency Moody’s has downgraded the corporate family rating (CFR) of HPCL-Mittal Energy Limited (HMEL) from “Ba1” to “Ba2” due to the deterioration in HMEL’s credit metrics, driven by the weak refining environment in Asia. The company’s expansion into petrochemicals, which has kept HMEL’s borrowings at elevated levels, also has bearing on the credit metrics. Moody’s also downgraded HMEL’s senior unsecured bond rating to Ba3 from Ba2. At the same time, it changed the outlook on the rating to “stable” from “negative”. Rating agency in a statement said that the weak industry conditions are reflected in the Singapore benchmark refining margins, which declined to around $3.7/barrel (bbl) for 2019 compared to its historical average of $6-$7/bbl. This decline in the benchmark was due to the extremely weak fuel oil spreads, which in turn were driven by the International Maritime Organization’s new regulation restricting the use of heavy fuel oil in marine transportation. HMEL’s credit metrics were also impacted by its ongoing expansion into petrochemicals which has led to an increase in its borrowings.
The company is in the process of setting up a dual feed petrochemical capacity of 1.2 million metrics tonnes per annum (mtpa).