Fitch said the outlook on the local-currency IDR was revised to positive due to RIL's potential to deleverage further
Fitch Ratings said it has revised the outlook on Reliance Industries' (RIL) long-term local-currency Issuer Default Rating (IDR) to positive from stable and has affirmed the ratings at 'BBB'.
It also affirmed the long-term foreign-currency IDR at 'BBB-', with a stable outlook, as RIL's foreign-currency IDR is capped by India's (BBB-/Stable) country ceiling of 'BBB-', the agency said.
Fitch said the outlook on the local-currency IDR was revised to positive due to RIL’s potential to further deleverage.
The revisions come after Reliance on August 12 announced that it would reduce its net debt by the financial year ending March 2021 (FY21).
During the AGM, chairman Mukesh Ambani also announced that RIL would sell a 20 percent stake in its oil-to-chemical division to Saudi Arabian Oil Company (Saudi Aramco).
"This investment by Saudi Aramco is subject to due diligence, definitive agreements, regulatory and other customary approvals. This partnership will cover all of RIL's refining and petrochemicals assets, including 51 percent of the petroleum retail JV," Ambani said.
The rating agency forecasts company's adjusted net debt/EBITDAR to reach 1.5x over the next 18 to 24 months. The company ended financial year 2018-19 with a net debt of Rs 1,54,478 crore.
"The affirmation of rating at 'BBB' reflect RIL's strong business profile—a large-scale refinery with a capacity of around 1.2 million barrels a day and industry-leading asset quality that enables it to consistently deliver a gross refining margin (GRM) above regional benchmarks," Fitch said.
RIL also benefits from its vertically integrated business model and dominant market position in petrochemicals, which smooth outs profit volatility along the refining and petrochemical value chain, it added.
The company had completed capex to increase its downstream integration, which improved feedstock flexibility, it said.
Fitch expects RIL's digital-services business Jio to continue its strong growth. Jio has achieved a leading position in its wireless subscriber base, though it is still evolving, as reflected in the recent spinoff of its tower and fibre assets to investment trusts and plans to roll out a fibre-to-the-home business.
Jio had more than 340 million subscribers, Ambani said during the AGM. RIL was ready to kickstart internet of things (IoT), home broadband, enterprise and MSME broadband during the year, with an annual revenue opportunity for Jio at Rs 20,000 crore from IoT only, he said.
RIL's financial profile was also likely to improve, supported by strong operating cash flow from its expanded petrochemical and refining business, Fitch said.
Capex should moderate from FY20, with free cash flow turning positive in FY21, it added.
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