Moody's revises RIL credit outlook to stable; affirms ratings

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Global ratings agency Moody's Investors Service has revised upwards its credit outlook on Reliance Industries (RIL) to stable and affirmed its Baa2 ratings on the energy conglomerate's long-term issuer debt.

But the agency has warned of higher borrowings by the country's richest and the most profitable company over the next 18 months to pay back its creditors for the large capex it had incurred on telecom and refining & petchem expansion.

"Such payments along with additional capex towards telecom services will constrain any reduction in net borrowings until fiscal 2019," it warned.

"We have revised our outlook on the domestic long-term issuer rating of RIL to stable from positive, while the outlook on the foreign currency senior unsecured rating is maintained at stable. The outlook on Reliance Holding US is also maintained at stable," Moody's said in a note today.

"The rating affirmation at Baa2 reflects expectation that RIL's credit metrics will recover over the next 12-18 months and be better positioned for its ratings as it continues to increase its earnings from the recently completed and ongoing projects in the refining and petrochemical segments," said Vikas Halan, vice-president and senior credit officer at Moody's.

The Baa2 ratings also reflects RIL's strong ability to generate operating cash flows, with annual EBITDA exceeding USD10 billion from its large-scale integrated refining and petrochemical operations with strong margins and its nascent but growing digital services business, he added.

"The change in the outlook on the Baa2 domestic issuer rating reflects the increase in RIL's business risks because of its growing digital services segment and our expectation that the high capital spending will keep its free cash flow negative over at least next 18 months," said Halan, who is also Moody's lead analyst for the largest corporate entity in the country with a Rs 6 trillion market capitalisation.

He said though RIL's refining and petrochem capex is almost complete, cash outflow will still remain high as payments to creditors for the past capex are made over the next 12-18 months.

"Such payments along with additional capex towards telecom services will constrain any reduction in net borrowings until fiscal 2019."

Retained cash flow adjusted to net debt improved to 16 percent in fiscal 2017 from about 14 percent in fiscal 2016, but remains weak for its ratings, Moody's said.

The rating firm said it anticipates retained cash flow /adjusted net debt improving to over 20 percent in fiscal 2018.

(Disclosure: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.)