Warning signs

Mumbai, June 10: Standard & Poor’s (S&P) believes the business and financial profile of Reliance Industries Limited (RIL) could be weakened if “substantial cash payments are made by the petrochemicals behemoth” as part of a possible settlement between the Ambani brothers.

The agency’s views come against the backdrop of recent reports indicating Mukesh and Anil Ambani are closing in on a deal to sort out ownership issues that have dogged the Rs 1,00,000-crore group since November last year.

However, S&P said in its report, released from Singapore, that the settlement per se should not have an immediate impact on the company’s rating (BB+/stable).

The agency explained that if the group’s telecommunications business is farmed out, along with the power and energy firms, to Anil ? who is also the vice-chairman of RIL ? it will not rock the flagship’s finances. On the contrary, it might even have a positive bearing.

“However, the profile of RIL could weaken materially if the settlement involves substantial cash payments, resulting in increased financial leverage, or a transfer of any of its core oil refining and petrochemicals businesses,” the rating agency cautioned.

For now, the outlook on RIL’s rating is “stable”. This is signifies that the grading is unlikely to change, unless there are “material adverse developments in the settlement between the company’s chairman and vice-chairman”.

The agency said it was optimistic that the final resolution of the differences between the Reliance promoters would balance the interests of lenders and shareholders, given RIL’s prominent position in India’s private corporate sector and its linkages with the domestic and international banking system and capital markets.

Reliance Industries reported revenues of Rs 73,164 crore and a net profit of Rs 7572 crore in 2004-05, up 30 per cent and 47 per cent over the previous financial year.

“Standard & Poor’s feels that RIL’s liquidity has improved, with cash and other investments adequately covering the debt maturing over the next one year,” it said.