Credit rating agency, Moody's Investors Service in its latest report has said that Indian oil companies will continue with high dividend payments, but the agency anticipates negative impact of it for oil refiners, further noting that the oil producers will not be as significantly affected.
According to the report, high shareholder returns-because of government policy-will increase the oil companies' borrowings and constrain their credit profiles, and upstream companies will be better positioned than the refiners to maintain credit quality.
Moody's Investors Service further said that the expected high dividend payments will further stress the refiners' credit metrics due to their low margins and high capital spending. However, the agency expects the regional refining margin, which has weakened significantly since June 2018, to meaningfully improve only in the second half of 2019.
Besides, the report said that credit quality of producers is supported by relatively high oil prices and the absence of a subsidy burden. At the same time, the producers will continue to invest in exploration and development activities, which will likely be funded with retained cash flow and, consequently, their borrowings are unlikely to increase.
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