Loss not to impact IOC: S&P

Global ratings major, Standard & Poor's today announced that the net loss of Rs 583 crore reported by Indian Oil Corporation (IOC) for the quarter ended December 31, 2005 does not have any direct impact on S&P's rating or the outlook on IOC.

The net loss reported in the unaudited financial results of IOC indicated a fall against a net profit of Rs 1,290 crore for the corresponding quarter in the previous fiscal. IOC is currently assigned a "BB+/stable" rating by S&P.

The rating is reflective of IOC's largely integrated operations and strong support it has received from the Centre.

The deterioration in its financial performance was largely attributed to the high crude oil prices and IOC's inability to trickle down increased costs to customers. According to S&P, "This increases the government's moral obligation to support IOC."

Fuel price subsidies cost Rs 2,480 crore for the three months ended December 31, 2005, which is more than double the Rs 1,210 crore for the same period in 2004."

S&P believes that gradual price revisions and alternative arrangements for sharing subsidies should reduce the financial burden on IOC.

IOC currently holds 9.6 per cent of Oil and Natural Gas Corporation (ONGC) and 4.8 per cent of GAIL (India) Ltd. Of these, IOC intends to sell up to 20 per cent and 50 per cent of its stake in ONGC and GAIL, respectively.

The sale, if it materialises, is expected to fetch Rs 35 billion-Rs 37 billion for IOC, and should improve the company's liquidity position and overall financial profile.

IOC is also expected to benefit from the continued support of commercial banks in India, specifically the state-owned banks. This is also likely to mitigate concerns related to its liquidity.

It is the largest domestic oil refiner and retailer of petroleum products, with the Indian government holding 82 per cent of its stake.