We view Bharat Petroleum Corporation Limited (BPCL) as “Low Risk” on our LARA scale, primarily due to its strategic importance to India and its SOE status (52.98% government-owned). It is the Indian government’s vehicle to manage retail fuel prices. Thus, BPCL enjoys significant credit uplift. We like the company’s large scale and leading position in the oil & gas downstream sector. It owns many of the country’s refineries, fuel stations and gas pipelines. However, BPCL remains exposed to volatility in crack spreads and crude prices, which affect its profitability. Capex requirements in its refinery, marketing and petrochemicals operations remain significant. BPCL’s credit metrics are quite healthy.
Our Credit Bias is “Negative” given India’s intended sale of its BPCL stake. The divestment is expected to be concluded in 2023, which could end the company’s SOE status and trigger the Change of Control clause for its debt. Uncertainty over the buyer and hence the strength of BPCL’s new parent is a potential negative for the credit.
We initiate coverage with a “Hold” recommendation on the BPCLIN notes.