Credit rating agency Moody's has downgraded Indian Oil Corporation's [Get Quote] ratings, which will make it difficult for the refiner to raise loans abroad.

Moody's brought the company's ratings to Baa3 from Baa2 due to the "material decreases in IOC's profitability as a result of continued regulatory restrictions in India," Moody's said in a statement.

IOC's net profit declined by 71 per cent in the first quarter of the current financial year.

"The downgrade would mean they would have no buyers for their debt papers. It would also impact borrowing from overseas banks," said a Mumbai-based analyst.

Of its total borrowings of Rs 42,500 crore, the company has foreign currency loans of around $3 billion (about Rs 12,000 crore) at an average interest rate of 4-5 per cent. "The interest rate on these loans is likely to rise," another Delhi-based analyst said.

He added that the company would not have problems raising money in India as government-owned banks would still offer loans.

The government owns 80.3 per cent stake in IOC. IOC, which sells petrol, diesel, kerosene and cooking gas at below production costs, is borrowing Rs 7,500 crore in the next couple of months, said the company's finance director SV Narasimhan.

The company expects borrowings to reach Rs 58,000 crore by September.

The average interest rate for its loans is around 7 per cent. The rate for new loans has gone up to 10-10.5 per cent, Narasimhan said.

The company's share price on the Bombay Stock Exchange halved in the last six months as crude oil prices have hit record highs but the company was not able to sell the fuels at market rates.

Moody's also said that IOC borrowings could come under further pressure as the company planned a capital expenditure of Rs 10,500 crore in the current financial year and Rs 50,994 crore till 2012.

IOC Chairman Sarthak Behuria said the company would complete the projects despite the higher borrowings. "Borrowings will rise. It is not good economics, but we have no option," he said.

Moody's also said IOC's rating may be downgraded further if the Indian government's rating is downgraded, as the government holds majority stake in the company and government policies continue to influence the company's operations.