OREANDA-NEWS. April 20, 2011. Credit rating agency Fitch has assigned state-run GAIL (India) Ltd's long-term foreign currency issues a 'BBB-' rating, and placed it with a stable outlook. "Fitch assesses that overall, the legal, operational and strategic ties between GAIL and its 57.3 per cent owner, the Government of India (GoI, 'BBB-'/Stable), are strong enough to rate the company on a top-down basis, equating its rating to that of the GoI," Fitch said in a statement.

Fitch said GAIL is strategically important to the government because of its dominant position in India's natural gas pipeline industry. It said GAIL acts as GoI's policy tool by bearing part of the under-recoveries which arise from the GoI-imposed price caps on three key fuels - diesel, liquefied petroleum gas (LPG, for domestic use) and kerosene (sold through the public distribution system).

"Given the company's relatively low financial and business risk, a 'BBB-' rating would still be appropriate in this situation. The rating of GAIL is constrained by the sovereign rating," Fitch said. However, the rating agency said that the company's other businesses -- petrochemicals and liquid hydrocarbons, which contributed 26 per cent and 12 per cent, respectively, to its EBIT in FY10 -- are exposed to market forces.

"Fitch believes the company's exposure to these riskier businesses will increase over time given its significant investment plans," it added. It added that GAIL's pipelines, which were built prior to 2008, receive revenue on the principle of an assured post-tax return on capital employed. This make their business very stable.