Moody’s Investors Services today said Reliance Industries’ credit metrics will remain stable over the next 12 months on the back of strong earnings contribution across the refining and petrochemical segments.
“In fact, RIL’s credit profile will improve upon the completion of its planned capex, as the projects in its refining segment will enhance its refining margin by about US $2-2.5 per barrel,” said Vikas Halan, Moody’s Vice President and Senior Credit Officer.
RIL results for the quarter ended September 30 were largely stable on contributions from the downstream refining and marketing segment and a modest improvement in the petrochemicals business, which more than offset the continued weak results from the upstream oil and gas segment, Moody’s said in a statement.
Despite the increase in its total borrowings with the new US $750 million loan from Korea Exim Bank to fund its telecom business, RIL’s credit profile continued to remain within its rating parameters as a result of a modest improvement in earnings in the quarter.
Its strong liquidity position also provided support to its credit metrics. It had cash and cash equivalents of Rs 83,456 crore compared to total debt of Rs 142,084 crore.
“RIL’s financial profile over the next 12 months will be supported by strong earnings contributions across its refining and petrochemical segments, even as the company increases its borrowings to partially fund its large Rs 180,000 crore capex plan,” Halan said.
Moody’s in its report, ‘Modest Improvement in Reliance Industries’ Q2 Results Supports Credit Profile’, said the firm’s refining business should improve over the next 2-3 years, as the company focuses on improving its yield pattern.
It points out that RIL is in the process of establishing the world’s largest petroleum coke gasification project in Jamnagar. Once completed, this project will convert petcoke from its refinery to high-value fuel.
Moody’s report says that RIL’s downstream refining and marketing segment is its key earnings contributor, reporting stable results in 2Q despite continued softness in regional refining margins.
According to Moody’s, the government’s decision to delay the increase in domestic natural gas prices by another six weeks to November 15, 2014 is credit negative for RIL, because the decision further delays the increase in revenues and EBITDA that would have resulted from revised gas prices, which were expected to nearly double to $8-8.4 per million British thermal units (mmbtu) from the current US $4.2.
Moody’s anticipated a $400 million revenue increase for RIL if prices had risen on April 1, 2014.
“The new government’s announcement that it would review the gas pricing formula, creates more uncertainty, and could lead to prices below those calculated under the formula approved by the previous administration,” the statement said.