| Bharat Oman Refineries Limited | ||||||||
| Long-term rating removed from 'Watch Developing'; Ratings Reaffirmed | ||||||||
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| 1 crore = 10 million | ||||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has removed its rating on the long term bank facilities and non-convertible debentures of Bharat Oman Refineries Limited (BORL) from ‘Rating Watch with Developing Implications’ while reaffirming the rating at ‘CRISIL AAA’ and a ‘Stable’ outlook has been assigned to the long-term rating. The short term rating & commercial paper has also reaffirmed at 'CRISIL A1+'.
The rating watch has been resolved following an announcement by Department of Investment and Public Asset Management (DIPAM) that the Government of India (GoI) has called off the present expression of interest (EoI) process for strategic divestment of Bharat Petroleum Corporation Ltd. (BPCL; ‘CRISIL AAA/Stable/CRISIL A1+’), which owns 100% stake in BORL. CRISIL Ratings had earlier placed BORL’s long-term rating on watch, following a similar rating action on BPCL. BPCL’s long-term rating was placed on watch, following a receipt of approval from the Cabinet Committee on Economic Affairs (CCEA), for strategic divestment of GoI’s 52.98% stake in BPCL, along with transfer of management control to a strategic buyer.
The ratings continue to reflect BORL’s strategic importance to BPCL, and its healthy operating efficiency. On October 21, 2021, BPCL’s board of directors approved the merger of BORL with itself.
The merger is expected to derive various advantages in the form of operational, logistic synergies and providing financial resources for any future expansions in Bina, Madhya Pradesh. Given the regulatory and procedural requirements, it is expected that merger process could further take around 5-6 months to conclude.
These strengths are however partially offset by the company’s modest financial risk profile and susceptibility of its overall performance to volatility in crude oil prices. |
Analytical Approach The ratings factor in BORL’s strategic importance to BPCL, and strong support from the parent via unsecured loans and compulsorily convertible debentures (CCDs). CRISIL Ratings has treated CCDs of Rs 1,000 crore as equity and unsecured loans of Rs 1,254 crore as neither debt nor equity. |
Key Rating Drivers & Detailed Description Strengths:
BORL remains strategically important to BPCL, as it is the only refinery in central India, and provides access to markets in central and northern India. BPCL continues to be the sole customer of BORL. On June 30, 2021, BPCL completed the process of acquiring the remaining stake i.e. 36.62% in BORL, thus making the latter its wholly-owned subsidiary. In September 2021, it also completed the process of acquiring 26.9 million share warrants that were subscribed by the GoMP. On October 21, 2021, BPCL’s board of directors approved the merger of BORL with itself.
BORL's business risk profile benefits from strong operating efficiency of its refinery, and healthy gross refining margin (GRM) levels. The high Nelson complexity index (NCI) of 11.3, enables the refinery to maximise distillate output and produce a superior product slate, largely comprising premium quality automotive fuels.
The company reported an overall GRM of $11.0/bbl. for fiscal 2022, as compared to $6.2/bbl. for the previous fiscal. Improvement in the core GRMs as well as the inventory gains earned with the rise in crude oil prices, have benefited the overall GRMs this fiscal. Over the medium term, operating performance is expected to remain comfortable with the plant operating at its optimum utilization and sustenance of core GRMs at the current levels.
Weaknesses:
Financial risk profile continues to be aided by healthy cash accruals and reduction in debt over the medium term. The subdued operating performance in the past two fiscals has increased the outstanding working capital borrowings of the company. Debt metrics is however expected to gradually improve over the medium term, with consumption recovered to pre-pandemic levels and a gradual improvement witnessed in operating profitability. BORL has a strong financial flexibility, being a subsidiary of BPCL.
Crude oil prices have been volatile over the past few years. Prices which fell sharply to around USD 20 per barrel (bbl.) towards end of March 2020, subsequently recovered to its pre-pandemic levels wherein it averaged at around USD 64 per bbl. by end of fiscal 2021 which further increased to USD 112 per bbl towards the end of fiscal 2022. The ongoing geo-political tensions have elevated the crude oil prices to above USD 100 per bbl. Average inventory of crude oil and finished goods of around 90 days, makes BORL’s operating performance vulnerable to fluctuations in valuations of inventory stock. BORL imports its entire crude oil requirement, and thus remains susceptible to volatility in the rupee-dollar exchange rate, and a corresponding increase in value of imports. |
Liquidity: Superior Liquidity position is comfortable, aided by annual cash accruals generated of Rs 800-1000 crore. The weakened operating performance in the past fiscals had increased the company’s dependence towards working capital debt. There could be a continued dependence on refinancing over the medium term, even with a revival expected in operating performance. CRISIL Ratings believes that BPCL is likely to extend financial support during exigencies, given the strategic importance of the refinery to the parent. Liquidity is also supported by available bank lines of Rs 5300 crore. |
Outlook: Stable CRISIL Ratings expects steady improvement in the operating performance on the back of high capacity utilisation, healthy refining margins and better product mix. BORL is expected to continue to benefit from the parental support received from BPCL. |
Rating Sensitivity factors Downward factors
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About the Company BORL was initially incorporated as a joint venture between BPCL and Oman Oil Company SAOC, with each party holding a 50% stake in the company.
In March 2020, amongst the 1147.19 million share warrants held by BPCL, 361.11 million warrants were converted into equity shares; thus increasing its equity stake in BORL to 63.38%. On June 30, 2021, BPCL completed the process of acquiring the remaining stake i.e., 36.62% in BORL, thus making the latter its wholly owned subsidiary. While it continues to hold 786.08 million share warrants of BORL, in September 2021, it also completed the process of acquiring the 26.9 million share warrants that were subscribed by the GoMP. Further, on October 21, 2021, BPCL’s board of directors have approved the merger of BORL with itself.
BORL operates an oil refinery with nameplate capacity of 7.8 million metric tonne per annum in Bina, Madhya Pradesh. The company also owns crude receipt facilities comprising a single-point mooring system in Vadinar, Gujarat, a 935-kilometre cross-country crude oil pipeline from Vadinar to Bina, and a captive co-generation power plant in Bina. |
Key Financial Indicators
#Provisional figures |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
$Fully interchangeable with non-fund based limits *Rs.600 crore interchangeable with fund-based limits |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||||||||||||||||||||||||||||||||||||||||||||
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$Fully interchangeable with non-fund based limits
*Rs.600 crore interchangeable with fund-based limits
Criteria Details
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