Research and rating agency Moody’s today downgraded Nayara Energy Limited’s corporate family rating to negative from stable, driven largely by weak refining margin environment in Asia.
“The downgrade to Ba3 reflects the significant deterioration in Nayara’s credit metrics, driven largely by the weak refining margin environment in Asia,” Sweta Patodia, Moody’s lead analyst for Nayara, said in a statement.
Nayara’s operating performance was further affected by a planned maintenance shutdown in December 2018, which resulted in lower throughput and capacity utilization during the period. In addition, the implementation of new accounting standards with respect to operating leases resulted in higher leverage and further weakened the company’s credit metrics.
“Nayara’s leverage — as measured by debt/EBITDA — increased to approximately 6.3x for last twelve months ended 30 June 2019 from 3.9x for fiscal year ended March 2018, and interest cover – as measured by EBIT/interest — declined to 1.5x from 2.1x over the same period,” Moody’s said in a statement.
Tightening regulations on the use of heavy fuel oil in the shipping industry from January 2020 will result in an increase in demand for middle distillates and lead to some recovery in refining margins for the refinery, the agency projected.
The rating agency expects Nayara to benefit from the new regulations given its high proportion of light and middle distillate output. However, the impact of recent outbreak of coronavirus on regional demand growth of petroleum product remains uncertain.