S & P Upgrades Ril, L & T Rating Outlook

The two companies' rating and outlook reflect the sovereign credit risk of India for foreign currency obligations, which was upgraded by S&P a few days ago, and hence they continue to be in the speculative grade.

RIL has time and again raised debt from the international markets, including the maiden floatation of a 50-year bond issue by an Indian corporate. L&T is expected to tap the debt market shortly with a $125-million issue.

S&P has sounded the warning bells for cement business of L&T which is "rapidly adding cement capacity possibly faster than the growing demand". In the case of RIL, the rating agency has said that medium-term profitability will depend "most heavily on the company's success in the domestic Indian polyester market and plastic polymer market".

 

S&P says the ability to construct cement machinery internally gives L&T a cost advantage over its competitors. However, owing to transportation and power problems at its new plants the cement business operated at about 60 to 65 per cent of capacity in fiscal 1996 and new facilities were being built in anticipation of continued demand.

"Although RIL is capable of producing a range of intermediate chemicals, profitability over the medium term will depend most heavily on the company's success in the domestic polyester market and plastic polymer market."

While several substantial facilities are under construction and subject to normal commissioning risks and the unpredictable nature of future commodity chemical prices, these risks are mitigated by RIL's strengths. These include its solid financial profile and cash flow, anticipated highly competitive cost position and strong track record of successfully bringing plants on stream.

S&P forecasts that RIL is likely to continue to grow its core chemical business aggressively and to be involved in oil and gas production and refining, power generation, and telecommunications through affiliated companies.