Global rating agency Moody's Investors Service on Tuesday affirmed state-owned Oil and Natural Gas Corporation (ONGC)'s Baa1 local and foreign currency issuer ratings, saying that credit metrics of the oil company improved over the last 12 months due to rise in oil prices.

"The ratings affirmation reflects our expectation that ONGC's credit metrics, which have improved over the last 12 months because of the high net realised oil price, will remain appropriate for its ratings," said Vikas Halan, a Moody's Senior Vice President.

ONGC's consolidated credit metrics - as measured by retained cash flow (RCF) to net debt - improved to 51 per cent during the fiscal year ended March 31, 2019 compared to 40 per cent during last fiscal, driven by better earnings, which in turn was because of higher realised crude oil prices.

"Based on an average net realized oil price assumption of $65 per barrel, we expect that the company's earnings for fiscal 2020 will be broadly in line with fiscal 2019," added Halan.

This means that ONGC will be able to generate positive free cash flow - despite the company's high level of capital spending and shareholder returns - which Moody's expects the company will use to reduce its borrowings.

ONGC's Baa1 issuer ratings are primarily driven by its standalone credit profile, as captured in its baa1 Baseline Credit Assessment (BCA), the rating agency said in a report.

"Given ONGC's strong credit metrics and status as a government-owned company, it maintains strong access to debt funding markets and can refinance its remaining short-term borrowings," the report noted.

In a separate development, Moody's has assigned a Baa3 rating to the proposed senior unsecured bonds of Adani Ports and Special Economic Zone Limited (APSEZ). The outlook on the ratings is stable. The company will use the fund proceeds to refinance $650 million senior unsecured bonds maturing in July 2020.

Edited by Chitranjan Kumar

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