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23 Feb 2011
NOTE: On May 20, 2014, the press release was revised as follows: The second sentence which previously read “RIL's foreign currency issuer and debt ratings remain unchanged at Baa2 with a stable outlook, as these are constrained by India's sovereign foreign currency ceiling of Baa2” has been corrected. Revised release follows.
Singapore, February 23, 2011 -- Moody's Investors Service has changed the outlook of the Baa2 local
currency issuer rating of Reliance Industries Limited (RIL) to positive
from stable. RIL's foreign currency debt ratings remain unchanged at Baa2 with a stable outlook, as these are constrained by India's sovereign foreign currency ceiling of Baa2.
The rating action follows the company's recent announcement of a
transformational partnership agreement with BP plc (BP, rated A2/Stable),
that will see BP take a 30% stake in RIL's 23 Indian oil
and gas blocks, including the substantial KG D6 gas field,
for an initial consideration of USD 7.2 billion plus further performance
related payments of up to USD 1.8 billion. The agreement
also entails the formation of a joint venture company aimed at developing
India's natural gas infrastructure. The deal is subject to
regulatory approvals and we expect the same to be completed by the end
Furthermore, the action recognizes the significant strengthening
of RIL's financial and liquidity profile recently, which has
resulted in some of its financial metrics surpassing Moody's parameters
for the rating.
"The partnership agreement has generally positive credit implications
for RIL, both operationally and financially," says Philipp
Lotter, a Senior Vice President at Moody's in Singapore.
"The decision to bring on board BP in support of India's domestic
gas market development will benefit RIL from BP's deep-water
drilling expertise, as well as allow it to share risks and costs
of future exploration and infrastructure projects, thus significantly
de-risking its upstream exposure," adds Lotter,
also lead analyst for RIL.
"Whilst RIL is now expected to have to share some of its upstream
cash flows with BP, it will also benefit from BP's initial
payment of USD 7.2 billion, which will further strengthen
RIL's already substantial liquidity. BP is also expected
to contribute to future field development, exploration and infrastructure
investments, thus lowering RIL's future capex outlay,"
The positive outlook further reflects the recent strengthening of RIL's
financial metrics above and beyond the parameters required for a Baa2
rating. Even without the benefits of the partnership agreement
with BP, Moody's expects RIL's credit profile to remain
strong for the rating level.
"We also take comfort from the fact that RIL is clearly focusing
its strategic efforts on the domestic oil & gas market, following
recent cautious steps into US shale gas and telecommunications,"
says Lotter. "RIL's longer term usage of its considerable
cash balance, however, remains a source of event risk,
whilst presently providing it with considerable flexibility for further
growth," Lotter adds.
The company's local currency rating could be upgraded over the short
to medium term, if its financial profile is consistently maintained
at levels whereby retained cash flow to debt is above 30-35%
and EBIT interest is above 8 times. Moody's presently expects
retained cash flow to debt to be above 30% for the next financial
However, the outlook could revert back to stable, if RIL undertakes
transformational debt-funded acquisitions, or allocates material
liquidity to finance growth that entails higher business risk.
A deterioration of retained cash flow to debt below 30% is also
likely to reverse any upward rating pressure.
Moody's last rating action on RIL was on 19 October 2010, when Moody's
assigned a definitive Baa2 senior unsecured foreign currency debt rating
for the USD1.5 billion guaranteed senior notes issued by Reliance
Holding USA, Inc., an indirect wholly-owned
subsidiary of Reliance Industries Limited.
The principal methodology used in rating RIL was Global Refining and Marketing
Rating Methodology published in December 2009. Other methodologies
and factors that may have been considered in the process of rating this
issuer can also be found on Moody's website.
RIL is a leading Indian energy company with significant refining and extensive
petrochemical operations, as well as a growing exploration and production
business. The company operates one of the world's largest single-site
refineries, the Jamnagar complex, with a refining capacity
of 1.2 million bbl/day. It generated revenues of US$43.3
billion and EBITDA (including profit on sale of Treasury Shares) of US$8.9
billion for the year ended 31 March 2010.
Philipp L. Lotter
Senior Vice President
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
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MD - Corporate Finance
Corporate Finance Group
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Moody's Investors Service Singapore Pte. Ltd.
Moody's changes outlook of Reliance's local currency rating to positive
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