Moody's assigns Baa2 rating to Reliance Industries' proposed USD bonds

Moody's Investors Service assigned a Baa2 rating to the proposed USD-denominated senior unsecured bonds to be issued by Reliance Industries Limited. The outlook on the rating is stable.

Moody's Investors Service on Tuesday assigned a Baa2 rating to the proposed USD-denominated senior unsecured bonds to be issued by Reliance Industries Limited (RIL). The outlook on the rating is stable.

Mukesh Ambani-led Reliance Industries Limited plans to raise around $5 billion in foreign currency-denominated bonds. The company will use the bond proceeds for refinancing.

"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," said Sweta Patodia, a Moody's Analyst.

"RIL's high dependence on the Indian economy through its digital services and retail businesses constrains its rating to one notch above that of the Indian sovereign rating," Patodia, who is also Moody's lead analyst for RIL, added in a statement released by Moody's Investors Service.

Elaborating on the ratings rationale, Moody's said: "RIL 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 944 billion ($12.6 billion) or 86 per cent of RIL's consolidated EBITDA for the 12 months ended 30 September 2021.

The company's digital services and consumer retail businesses are housed under separate subsidiaries, while its refining and the petrochemical business -- also 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.

However, Moody's warned that a resurgence of coronavirus infections due to the emergence of new variants could result in fresh lockdowns and affect the company's O2C and retail earnings.

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.

RIL has excellent liquidity. As of 30 September 2021, the company had adjusted cash and cash equivalents, including quoted marketable securities, of about Rs 1.9 trillion ($25.6 billion).

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 266 billion in proceeds from the final call on its rights issue, which further enhances its liquidity.