The bonds have been rated Baa2 by Moody’s and BBB- by Fitch Ratings. The tenor of the issue is not known immediately. Moody’s has also affirmed the national energy major’s rating, expecting leverage levels to stay within the tolerance level despite negative free cash flow on account of high shareholder returns and capital spending, said Vikas Halan, a senior vice president at the agency.

He pointed out that last month IOC had announced a Rs 12,300-crore share buyback and also increased the net borrowings. “The ratings also remain constrained by the uncertainty around government policy for the oil & gas sector, especially with respect to fuel pricing and consolidation in the sector,” Halan said noting the forced Rs 1-a-litre fuel subsidy on state-run oil refiners announced by government in October when petrol price had crossed Rs 94 a litre.

Additionally, IOC is also exposed to event risks as the government is looking to consolidate its assets in the oil & gas sector, the report said.

“However, despite the risks, IOC’s size and government support in case of any serious risks make the agency reaffirm the ratings,” he said, adding the rating also draws from the sovereign rating.

Rival agency Fitch also said it looks at IOC’s status, ownership and control by the sovereign as ‘strong’. “We view the support track record and the likelihood of state support, if needed, for IOC as ‘strong’. The company has received tangible support from the state in the form of subsidies to meet under-recoveries,” it said.

Fitch said it expects IOC’s capex to remain high to upgrade refineries to meet new emission standards (BS-VI) and to expand refining and petrochemical capacity, including the expansions underway.

It forecasts an average capex of Rs 25,000-30,000 crore per annum over the next five-six years, and noted that these investments will support improvement in margins over the medium term. “We expect IOC’s net debt levels to increase due to large capex plans in the medium-term. However, we believe its credit metrics will remain commensurate with its current standalone credit profile,” Fitch said.