$5-Billion Bonds Issue: Moody’s Assigns Baa2 Rating To Reliance

Last week, Reliance said it would raise around $5 billion in foreign currency denominated bonds and use the proceeds to retire company’s existing debt

New Delhi: Global rating agency Moody’s Investors Service on Tuesday assigned Indian conglomerate Reliance Industries Limited (RIL) a Baa2 rating to the proposed USD-denominated senior unsecured bonds, with stable outlook, according to a report in PTI.

Last week, Reliance said it would raise around $5 billion in foreign currency denominated bonds and use the proceeds to retire company’s existing debt.

Sweta Patodia, an analyst with Moody’s, in the rating agency’s press statement said, “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.”

The company’s high dependence on the economy through its digital services and retail businesses constrains its rating to one notch above that of the Indian sovereign rating, she said.

According to Moody’s, Reliance benefits from diversified earnings sources that have little or no correlation, given its presence in the refining and petrochemicals, digital services, and consumer retail segments.

These three segments together generated around Rs 94,400 crore or 86 per cent of RIL’s consolidated Ebitda for the 12 months ended September 30, 2021.

The conglomerate’s digital services and consumer retail businesses are placed under separate subsidiaries, while the refining and the petrochemical business, known as the oil-to-chemical (O2C) segment, is held at the holding company level.

RIL’s announcement to increase tariffs for its digital services business is positive for the telecommunications industry, while the easing of pandemic-related disruptions will support demand for oil and gas as well as increase consumer spending. These trends bode well for RIL's various business segments and will keep earnings strong over the next 12-18 months, Moody's said.

“A resurgence of Covid due to the emergence of new variants could result in fresh lockdowns and affect the company’s O2C and retail earnings,” the agency said.

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

“The stable outlook reflects Moody’s expectation that the company’s earnings will continue to improve over the next 12-18 months across all its business segments, such that its credit metrics will remain strongly positioned for its ratings,” the statement said, adding the stable outlook is also in line with the stable outlook of the Indian sovereign rating and reflects Moody’s view that RIL cannot be rated more than one notch above the Indian sovereign.

Reliance Industries has excellent liquidity. As of September 30, 2021, the company had adjusted cash and cash equivalents, including quoted marketable securities, of about Rs 1.9 lakh crore. Its existing cash, along with expected cash flows from operations, will be sufficient to cover its cash outflows for capital spending and debt maturities in the next 18 months.

In November 2021, RIL received around Rs 26,600 crore in proceeds from the final call on its rights issue, which further enhances its liquidity.

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