Retaining a positive outlook for Reliance Industries Ltd, rating agency Moody’s on Monday said that Mukesh Ambani-run firm’s long-term fundamentals remain intact despite weak macro environment and growing pressures in its oil and gas business.
“Despite RIL’s declining natural gas production and downward revisions to its proved reserves, we maintain our positive outlook on its Baa2 local currency rating and stable outlook on its foreign currency rating,” Moody’s said in a statement.
The rating agency was hopeful that RIL would sort out technical problems being faced at its flagship eastern offshore KG-D6 fields where output has almost halved in past two years.
“We are confident Reliance will sort out technical problems with the support of its joint venture partner BP plc and that proved reserves will rise. We also expect gas prices to rise, and that this will more than compensate for lower production,” it said.
Moody’s said that the company’s liquidity position improves significantly as a result of its 30 per cent stake sale in 21 exploration blocks including KG-D6, to BP for $7.2 billion.
Other key drivers to the positive outlook being an improvement in RIL’s credit fundamentals like increased scale; growing diversification between the upstream, refining and petrochemical businesses; and retention of a strong financial profile throughout its growth phase.
It further said that despite softening margins in the fiscal ending March 2012, RIL generated positive free cash flows for the first time in last five years.
“Also, its net debt-based credit metrics are stronger for its rating and this is supported by cash and cash equivalents of $14 billion, an all-time high for the company,” it said.
Besides, Moody’s added, that a depreciating rupee was largely positive for RIL, given that it derives 60 per cent of its revenues from exports and most of its domestic sales are either linked to import parity pricing or denominated in US dollars.
“Its refining margins and petrochemical crack spreads are also US dollar-denominated. The company maintains more than 80 per cent of its debt in foreign currency but, given the likelihood of refinancing these in the foreign currency, we do not expect any cash loss on this front,” it said.
However, it added, slowing Indian economy would harm RIL’s credit profile and the outlook could be revised.
“If India’s sovereign rating were to be downgraded, we would need to review RIL’s local and foreign currency ratings, which are both currently one notch above the sovereign,” Moodys said.