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Ratings firm Fitch has assigned moderate default risk to state-run GAIL India Ltd8217;s long-term foreign currency issues,on the back of the energy major8217;s strong linkages with the government.
8220;Fitch Ratings has assigned GAIL India Ltd GAIL a long-term foreign currency issuer default rating of 8216;BBB-8216;. The outlook is stable,8221; it said in a statement.
It added that 8220;overall,the legal,operational and strategic ties8221; between GAIL and the government of India are quite strong.
A 8216;BBB8217; rating denote a moderate default. The government has a 57.3 per cent stake in GAIL.
Fitch said that GAIL is strategically important to the government because of its dominant position in India8217;s natural gas pipeline industry.
8220;Fitch notes that this trend will continue as the company is significantly expanding its pipeline network. GAIL owns 72 per cent of India8217;s total gas pipeline network.
Further,it is the government agency for implementing several proposed transnational pipelines which are strategic in terms of long-term energy security,8221; it said.
The ratings agency said that GAIL bears part of the 8216;under-recoveries8217; arising from the government-imposed price caps on three key fuels 8212; diesel,LPG for domestic use and kerosene sold through the public distribution system.
8220;The under-recoveries 8212; which result when tariffs are lower than market prices 8212; are then shared by the national oil companies including GAIL and the government itself. GAIL only shares the under-recoveries arising from cooking fuels LPG and kerosene,8221; Fitch said.
It added that GAIL8217;s pipelines,which were built prior to 2008,receive revenue on the principle of an assured post-tax return on capital employed. This make their business very stable.
GAIL has significant medium-term capex plans,which include expansion of its gas pipeline network from approximately 8,200 km currently to 14,350 km by 2013 and petrochemical capacity from 4.10 lakh tonne per annum TPA to 8 lakh TPA by 2014.
Fitch expects further investments as the energy firm is pursuing opportunities in city gas distribution sector,exploration and production blocks and gas-fired power generation.
GAIL reported a revenue of Rs 27,000 crore in 2009-10. 8220;GAIL has a comfortable financial profile supported by consistent sound profitability and strong liquidity position,8221; Fitch said.
