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Moody's raised Reliance Industries' local currency rating from stable to positive on Wednesday.
The rating action follows the company's recent announcement of a transformational partnership agreement with BP Plc that will see BP take a 30 per cent stake in RIL's 23 Indian oil and gas blocks, Moody's said in a press release.
“Moody's Investors Service has changed the outlook of the Baa2 local currency issuer rating of Reliance Industries (RIL) to positive from stable. RIL's foreign currency issuer and debt ratings remain unchanged at Baa2 with a stable outlook, as these are constrained by India's sovereign foreign currency ceiling of Baa2,” it said.
“Furthermore, the action recognizes the significant strengthening of RIL's financial and liquidity profile recently, which has resulted in some of its financial metrics surpassing Moody's parameters for the rating.”
Mr Philipp Lotter, a Senior Vice-President at Moody's in Singapore, said: “The partnership agreement has generally positive credit implications for RIL, both operationally and financially.
“The decision to bring on board BP in support of India's domestic gas market development will benefit RIL from BP's deep-water drilling expertise, as well as allow it to share risks and costs of future exploration and infrastructure projects, thus significantly de-risking its upstream exposure.”
Even without the benefits of the partnership agreement with BP, RIL's credit profile is expected to remain strong for the rating level, said Moody's.
“RIL's longer term usage of its considerable cash balance, however, remains a source of event risk, while presently providing it with considerable flexibility for further growth,” said Mr Lotter.
Moody's said that the outlook could revert back to stable if RIL undertakes transformational debt-funded acquisitions or allocates material liquidity to finance growth that entails higher business risk. A deterioration of retained cash flow to debt below 30 per cent is also likely to reverse any upward rating pressure.
RIL shares closed up 1.15 per cent at Rs 996.35 on BSE on Wednesday.
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