Ratings firm Fitch has assigned moderate default risk to state-run GAIL (India) Ltd’s long-term foreign currency issue on the back of the energy major’s strong linkages with the Government.

“Fitch Ratings has assigned GAIL (India) Ltd a long-term foreign currency issuer default rating of ‘BBB—’. The outlook is stable,” it said in a statement.

It added that “overall, the legal, operational and strategic ties” between GAIL and the Government of India are quite strong.

A ‘BBB’ rating denotes a moderate default. The Government has a 57.3 per cent stake in GAIL.

Fitch said that the company is strategically important to the Government because of its dominant position in India’s natural gas pipeline industry.

“Fitch notes that this trend will continue as the company is significantly expanding its pipeline network. GAIL owns 72 per cent of India’s total gas pipeline network.

Further, it is the government agency for implementing several proposed transnational pipelines which are strategic in terms of long-term energy security,” it said.

The ratings agency said that GAIL bears part of the ‘under-recoveries’ arising from the Government-imposed price caps on three key fuels — diesel, LPG for domestic use and kerosene sold through the public distribution system.

“The under-recoveries — which result when tariffs are lower than market prices — are then shared by the national oil companies (including GAIL) and the Government itself. GAIL only shares the under-recoveries arising from cooking fuels — LPG and kerosene,” Fitch said.

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