The Hindu Business Line : ICRA assigns highest safety rating to GAIL bonds

ICRA has assigned a `LAAA' rating, indicating the highest safety, to the Rs 1,000-crore non-convertible bonds (NCD) programme of GAIL (India) Ltd. The LAAA rating earlier assigned to the company's Rs 500-crore bonds programme has also been reaffirmed.

The highest safety ratings, according to an ICRA statement, take into account GAIL's strong market position in the gas transmission and distribution business, its strong financial position arising out of its healthy profitability resulting in strong cash generation from operations and low gearing.

ICRA, however, has noted the uncertainties in the regulatory framework governing the gas pipeline industry and GAIL's operating environment. The Union Government has issued a draft pipeline policy that provides for appointment of a regulator for pipeline tariffs and establishment of a national gas grid (NGG). The draft pipeline policy has proposed that NGG would be operated on an open access basis, and will be built/managed by GAIL. This could necessitate GAIL deploying capital to the extent of Rs 15,000 crore-Rs 18,000 crore over the next five to six years for setting up various pipelines forming part of the NGG.

However, as it is currently unclear when or if these gas regulations will be passed or if GAIL would be chosen as the notified company to develop and operate the NGG, the rating agency is yet to take a definitive view on the same. It would, however, be closely monitoring the regulatory developments and GAIL's capital expenditure plans and, in due course, assess its implications on GAIL's future credit quality.

GAIL is primarily engaged in the natural gas transmission business, where it presently enjoys a near monopoly situation with a market share in excess of 90 per cent. The transmission business, where returns are regulated, is presently the key driver of GAIL's profitability. The domestic gas business in the country is, however, set to witness considerable change in the coming years, as supply of gas from newer gas discoveries and from the liquefied natural gas (LNG) terminals finds itself into the domestic markets.

GAIL has embarked upon a strategy aimed to become a large player in the gas marketing business, and has executed a `take or pay' offtake contract for 60 per cent of the gas to be supplied by Petronet LNG Ltd, of which it is one of the sponsors.

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