S&P upgrades RIL's rating to ‘positive'

Standard & Poor's Rating Services raised its rating on Reliance Industries from ‘stable' to ‘positive' on Thursday. “We revised the outlook to positive to reflect our expectation that RIL's financial profile would improve, and that the company's exposure to India's country risk would reduce after its proposed partnership with BP PLC,” S&P said in its report.

It also affirmed RIL's ‘BB' long-term corporate credit rating and ‘BBB' issue rating on the company's senior unsecured notes.

BP to add colour

“The transaction would significantly improve its liquidity position, resulting in lower debt (after adjusting for cash and cash-equivalents of more than $1.5 billion).

“Lower debt, in turn, would improve RIL's ratio of adjusted debt to EBITDA to less than 0.5x for the fiscal year ending March 31, 2012.

We also expect BP's significant experience and capabilities of managing deepwater exploration and development operations to help RIL improve its exploration and production business in India. The positive outlook reflects our expectation that RIL's financial profile would improve after the proposed partnership with BP,” it said.

“The outlook revision also reflects our expectation that RIL will begin to generate positive free operating cash flows (FOCF); the company has had negative FOCF for the past five years,” said Standard & Poor's credit analyst Mr Mehul Sukkawala.

Chance for 'stable'

“We could revise the outlook to stable if RIL shifts back to an aggressive growth strategy, resulting in a higher-than-expected capital expenditure, or the company makes a large acquisition that drains its liquidity or increases its debt,” the report said.

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