HMEL's credit metrics to worsen due to weak refining margins

New Delhi: Fitch Ratings on Friday said HPCL-Mittal Energy Limited's credit metrics over 2019-20 and 2020-21 financial years would worsen by more than previously expected due to near-term weakness in refining margins and a faster pace of its petrochemical (petchem) capex.

Earlier this week, Moody's Investors Service downgraded the corporate family rating of HMEL to Ba2 from Ba1 due to weak refining margins arising from a slump in fuel demand.

In a statement, Fitch Ratings said while credit metrics will worsen in the current and the next financial year, "an accelerated earnings contribution from petchem will lead to faster deleveraging, resulting in net leverage (as defined by adjusted net debt/operating EBITDAR) coming down to below 5-times by FY23."

The net leverage is still within Fitch's negative rating sensitivities for HMEL's Standalone Credit Profile (SCP) of 'bb-'. HMEL expects to start commercial operations of its petchem project by April 2021, a year ahead of its previous expectation.

It spent R 3,800 crore during the first nine months of current fiscal and is likely to top Rs 6,000 crore for the financial year, compared with Fitch's previous expectations of Rs 3,500 crore.

The company, which operates an 11.3 million tonnes a year oil refinery at Bhatinda in Punjab, is in the process of setting up a dual-feed petrochemical capacity of 1.2 million metrics tons per annum (mtpa).