The Hindu Business Line : S&P revises Reliance outlook to negative

Mumbai Dec. 31 Global rating agency Standard & Poor’s on Wednesday revised its rating outlook on Reliance Industries Ltd (RIL), from stable to negative, reflecting the company’s increased debt and pressure on profitability.

At the same time, S&P affirmed its ‘BBB’ long-term corporate credit rating on the Mukesh Ambani-controlled RIL.

S&P said the downturn in commodities and oil refining as a fallout of the global economic slowdown had affected the profitability of the company.

“This is expected to weaken the company’s cash flow measures, including adjusted debt to EBITDA rising 2.5 times in the near term, which is higher than our earlier expectations of about two times. However, we do expect the ratio to improve somewhat in the medium term,” S&P said.

It also pointed out that RIL’s cash flow measures are expected to improve after its Jamnagar refinery becomes fully operational. RIL owns 70.38 per cent stake in Reliance Petroleum, which operates the Jamnagar refinery that came on-stream in December 2008. S&P expects the refinery’s production to be ramped up to almost full capacity in 2009-10.

S&P, however, pointed out that the company’s liquidity is strong with cash of about $5.3 billion as on November 30, 2008. This is enough to cover about $3 billion debt due in one year — the company is likely to use about $1.5 billion for working capital requirements with the new Jamnagar refinery, it said.

“Profitability, however, is expected to be adversely affected by lower fuel demand, especially in developed markets,” Mr Mehul Sukkawala, S&P’s credit analyst, said.

This, he said, is evident from the company’s gross refining margins softening to $13 a barrel in the quarter ended September 30, 2008 from $15 a barrel in 2007-08. “We project refining margins to decline further to $9-10 a barrel in the near term,” S&P said.

The RIL scrip closed at Rs 1,230.25 on the BSE today, down by 1.50 per cent, while Reliance Petroleum closed at Rs 87.25, down 1.13 per cent.