Rating agency, Standard & Poor’s, on Thursday raised Reliance Industries’ credit outlook from stable to positive on expectation of better financials post the corporate giant’s proposed $ 7.2 billion deal with global oil major BP.
“Standard & Poor’s Ratings Services (S&P)... revised its outlook on India based RIL to positive from stable,” it said in a statement.
It further added: “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 also affirmed the ‘BBB’ long term corporate credit rating on RIL and the ‘BBB’ issue rating on the company’s senior unsecured notes.
‘BBB’ rating signifies adequate capacity to meet financial commitments.
Earlier this week, Europe’s BP Plc agreed to pay $ 7.2 billion for 30 per cent stake in most of Reliance Industries’ oil and gas blocks, including the gigantic eastern offshore KG—D6 fields.
The company will receive the amount over the next 10—12 months, subject to necessary regulatory approvals.
“The transaction would significantly improve its (RILs) 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 (Earnings before interest, taxes, depreciation and amortisation),” S&P said.
It said BP’s significant experience and capabilities of managing deepwater exploration and development operations would help RIL improve its exploration and production (E&P) business in India.
“The outlook revision also reflects our expectation that RIL will begin to generate positive free operating cash flows,” S&P credit analyst, Mr Mehul Sukkawala, said.
The rating firm also pointed to RIL’s strong liquidity position with cash and cash equivalents of $ 7.1 billion as on December 31, 2010.
“This is more than enough to cover long term debt maturities of about Rs 5,000 crore due in one year and short term debt of Rs 14,900 crore as at December 31, 2010.
RIL’s liquidity position would further strengthen after it receives the cash consideration from BP,” S&P said.