RIL's credit outlook goes up after deal

Post Reliance Industries’ (RIL) $7.2 billion deal with British Petroleum, rating agency Moody’s on Wednesday raised the Indian company’s credit outlook from stable to positive, anticipating better financials.

“Moody’s Investors Service has changed the outlook of the Baa2 local currency issuer rating of Reliance Industries (RIL) to positive from stable,” the rating agency said in a statement.

‘Baa’ rating implies moderate credit risk and may possess certain speculative characteristics.

“The partnership agreement has generally positive credit implications for RIL, both operationally and financially. Whilst RIL is now expected to have to share some of its upstream cash flows with BP, it will also benefit from BP’s initial payment of $7.2 billion, which will further strengthen RIL’s already substantial liquidity. BP is also expected to contribute to future field development,exploration and infrastructure investments, thus lowering RIL’s future capex outlay,” says Lotter.,” said Philipp Lotter, a Senior Vice President at Moody’s in Singapore.

Lotter, also lead analyst for RIL, added that the deal will allow RIL benefit from BP’s deep-water drilling expertise, as well as share risks and costs of future exploration and infrastructure projects, thus significantly de-risking RIL’s upstream exposure.

“The company’s local currency rating could be upgraded over the short to medium term, if its financial profile is consistently maintained,” Moody’s said.