Moody’s assigns Baa2 rating to RIL’s proposed dollar bond issue

NEW DELHI – Moody’s Investor Service on Tuesday assigned Baa2 rating to the proposed dollar-denominated senior unsecured bonds to be issued by multinational conglomerate Reliance Industries (RIL) and maintained a stable outlook for the same.

"RIL's Baa2 ratings reflect the company's large scale and dominant market position across its diverse businesses, its management's strong execution track record and our expectation that its credit metrics will remain strongly positioned for its Baa2 rating, despite its planned investments in clean energy and other business segments," wrote Sweta Patodia, a Moody's analyst. The bonds will be used by Reliance for refinancing purposes.

Patodia, Moody’s lead analyst for Reliance said the Mukesh Ambani-led company’s significant dependence on India’s economy through digital services and retail business acts as a constraint for its rating, confining it to a notch above that of the country’s sovereign rating.

Commenting on the rationale for the rating action, the agency said Reliance stands to benefit from its diversified sources of earning which have minimal or no correlation, given the company’s presence in sectors such as refining, petrochemicals, digital services and consumer retail.

“These three segments together generated around Rs 944 billion ($12.6 billion) or 86% of RIL's consolidated EBITDA for the 12 months ended 30 September 2021,” Moody’s wrote.

The rating agency expressed a positive outlook on Reliance’s recent decision to increase tariffs for its digital services business, adding that the easing of pandemic-related disruptions would support demand for oil and gas as well as consumer spending. These trends would enable Reliance to post strong earnings over the next 12-18 months, Moody’s said.

On the other hand, however, a resurgence of COVID-19 infections in India could lead to fresh curbs on activity and hit Reliance’s oil-to-chemical and retail earnings, the rating agency said.

“RIL's earlier announcements to transfer its gasification undertaking into a wholly-owned subsidiary while reevaluating the planned transfer of its O2C business to a separate subsidiary will not have any impact on the company's credit profile.”

Moody’s expects Reliance to generate adequate cash flows from operations each year to fund capital spending, the agency said, adding that the stable outlook on the company was in line with India’s sovereign rating and a reflection of the view that the conglomerate’s rating could not be more than a notch above that of the country.

Emphasising that Reliance has excellent liquidity, Moody’s said the company’s liquidity position had been augmented by receipts of around Rs 26,600 crore in proceeds from the final call on its rights issue.

“The company's liquidity is further supported by its strong banking relationships and access to domestic and international capital markets,” Moody’s said.