Global agency Standard & Poor’s on Monday said Reliance Industries’ proposed Rs 10,440 crore buyback plan and drop in earnings will not impact its credit ratings.
Last week RIL reported 13.6 per cent drop in net profit to Rs 4,440 crore for the third quarter ended December.
RIL also said it would buy back up to 12 crore equity shares worth Rs 10,440 crore from the open market at a maximum price of Rs 870 a piece in its first share buyback since 2005.
“A 25 per cent drop in RIL’s EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortisation) in the quarter ended December 31, 2011, compared with the previous quarter will also not affect the rating,” S&P said in a statement.
“We believe RIL’s liquidity will remain strong despite the buyback, considering the company’s significant cash and cash equivalent of Rs 74,500 crore as of December 31, 2011.
The buyback plan could result in a maximum cash outflow of Rs 10,400 crore,” S&P said.
S&P has a long term corporate credit rating of BBB/ Positive on RIL, which is considered to be the highest speculative grade by market participants.
It said RIL’s business strategy, particularly the use of its significant cash balances, would be a key determinant of any future rating action on the company.
RIL’s rating factors in a likely volatility in operating performance due to the cyclical nature of the refining and petrochemical sectors and the challenges at the company’s KG D6 block, where gas production is declining, it added.
“We believe RIL’s financial performance will remain strong in the next 12 months,” S&P said.
Meanwhile another ratings firm Fitch said its ratings on RIL remains unaffected because of the company’s strong balance sheet.
“Though this share buyback will reduce RIL’s cash balance, its net financial leverage should remain within the current rating expectations”, says Mr Abhinav Goel, Senior Director in Fitch’s Asia Pacific Energy & Utilities team.