Our Bureau

Mumbai, Nov. 23

STANDARD & Poor's Ratings Services in Singapore said on Wednesday that it had raised long-term foreign and local currency ratings on Reliance Industries Ltd to `BBB' from `BB+'. The outlook on RIL, the rating agency said, is stable.

According to S&P, with a prominent share of exports, high degree of integration with international capital markets, and positive free cash flow, Reliance meets its revised criteria for assigning non-sovereign issuers foreign currency ratings higher than those of the sovereign, which in this case is India (BB+ / Stable/B). Reliance is expected to retain these attributes under stressful conditions such as adverse currency movements, the agency said.

"The upgrade reflects Reliance's competitive position in refining and petrochemicals, its divestment of capital-intensive non-core telecom and power businesses, and an overall moderate financial profile," said Mr Anshukant Taneja, credit analyst, S&P.

The ratings factor in the demerger arrangement, as approved by shareholders and creditors of the company, which does not entail any material cash outflows from Reliance. The timely completion and continuity of this demerger arrangement is critical for the outlook and ratings.

"But the ratings remain constrained by Reliance's exposure to highly cyclical industries, large capital commitments in its refining, exploration and production businesses, and uncertainties in developing its reportedly large gas reserves," he said.

S&P views the Rs 61,700-crore ($13.5 billion) capital expenditure plan of Reliance with caution, given potential softening in the petrochemical cycle, reduced demand for refined petroleum products, and uncertainties related to the company's upstream gas business. Lower-than-expected cash flows for funding a part of the capital expenditure could mean still higher borrowings, which would weaken the company's credit protection measures.

"Reliance's current financial position, strong liquidity, and high access to financial resources do mitigate some of these risks," said Mr Taneja. Some flexibility arises from the potential to scale back capital expenditure in case the gas reserves are lower than the company's current estimates, the report said.

(This article was published in the Business Line print edition dated November 24, 2005)
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