Reliance, ONGC’s Credit Quality Can Bear India’s Windfall Tax

Bijou George, Bloomberg News

A sign outside the newly-opened Jio-BP gas station in Mumbai, India, on Tuesday, Oct. 26, 2021. Reliance Industries Ltd. and BP Plc.’s fuel and mobility joint venture Reliance BP Mobility Ltd. Tuesday launched its first Jio-BP branded mobility station at Navde near Mumbai, the oil-to-retail conglomerate said in a statement. Photographer: Dhiraj Singh/Bloomberg , Bloomberg

(Bloomberg) -- Billionaire Mukesh Ambani’s Reliance Industries Ltd. and state-run Oil & Natural Gas Corp. are unlikely to suffer a “material” dent to their credit quality from India’s decision to levy additional taxes on local fuel exports and oil production given already elevated crude prices, Moody’s said.

“While profits generated from oil exports will fall because of windfall taxes, they will likely remain higher than the levels over April 2020 to March 2022 if refining margins are sustained at the highs seen in April to June this year,” wrote Moody’s analyst Hui Ting Sim in a note. “High crude oil prices will support the earnings of oil producers.”

India’s move to impose levies on energy firms from the start of July to tap windfall gains from high oil prices caused the stock prices of both Reliance and ONGC to fall on Friday and for spreads on their dollar bonds to widen. Spreads on some of those notes have stabilized or tightened since as investors assess the impact of the government charges.

Moody’s expects the government measures to be temporary and the taxes to be eventually adjusted, according to rating company’s note. The taxes are aimed at helping India shore up revenues as it faces challenges in managing its fiscal deficit, after the government joined a growing cohort of countries to introduce such levies.