Credit Rating Agency Moody's downgraded the Local Currency Rating of ONGC and GAIL

Credit rating agency Moody's Investors Service downgraded the local currency rating of ONGC and GAIL. Moody’s however retained stable outlook for these companies. ONGC was downgraded to Baa1 from A2 and GAIL to Baa2 from A3.

Moody's was of the opinion that both ONGC and GAIL cannot be completely de-linked from the credit quality of the Government (Baa3, stable), and thus their ratings need to reflect the risk that they share with the sovereign.

The rating agency stated that there has been no deterioration in the intrinsic credit quality in ONGC and GAIL. Both companies are still viewed as Government-related issuers. However it was perceived that a weaker sovereign has the potential to create a ratings drag and, therefore, it is appropriate to limit the extent to which these issuers are rated.

ONGC and GAIL are predominantly domestic entities. While GAIL generates its entire revenue from India, it is 85 per cent for ONGC. Government owns 69 per cent in ONGC and 57 per cent in GAIL.

Moody's narrowed the gap between the sovereign and these entities to reflect long-term transmission of credit risk. Both issuers (ONGC & GAIL) were rated above the sovereign as a reflection of their stronger credit quality. The gap between the issuers and the government however became smaller than before.

ONGC is India's flagship exploration and production company and accounts for about 75 per cent of the total proved reserves in India. GAIL is the largest natural gas transmission company in India, with interests in transmission, distribution, processing, and downstream petrochemicals.