The Telegraph
Since 1st March, 1999
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Reliance earns Moody’s clap

Mumbai, Feb. 7: Reliance Industries (RIL) is on a roll. Just two months after it received a rating upgrade, Moody’s Investors Service has gone and done it again. It has upgraded RIL by one more notch to Baa2 from the Baa3 rating it had given last November.

Clearly, the demerger has been the best thing to happen to RIL, which is now an oil and petrochemicals company with a bit of textiles on the side.

The rating upgrade comes at a time when all the big boys in the field of oil exploration and production (E&P) have been reporting blowout results this quarter, including Exxon, Shell and British Petroleum.

Reliance’s rating is just one notch below state-owned Oil and Natural Gas Corporation’s Baa1 rating that was accorded last week. ONGC was also given a local currency issuer rating of A2 with a stable outlook. These are the highest ever credit ratings assigned by the international agency to any Indian corporate.

Explaining the rationale for the rating upgrade that comes with a stable outlook, Moody's said the demerger would improve the efficiency of RIL. The international rating agency has also upgraded the company's foreign currency bond rating to Baa2 from Baa3 with a stable outlook. The rating agency had indicated in November last year that if the demerger plan goes through by April, the ratings will be revised upwards to Baa2.

It said the upgrade reflected Reliance's final completion of the demerger of its telecom, energy and financial services businesses and shares in the separate groups have been distributed to shareholders.

The rating upgrade was timed to perfection: the Mukesh Ambani faction handed over control of the four demerged companies to the Anil group just a couple of hours later.

According to Moody's, the demerger was essentially a non-cash transaction and it did not result in any significant cash outflow for the company. This, it added, has helped reduce the uncertainties.

“The demerger will also preserve the operational efficiencies and synergies within the company's refining and petrochemical businesses,” Moody's lead analyst Helen Li said.

Explaining how the Baa2 rating was given to RIL, Moody's said its refinery profitability is consistent with a rating profile of AAA. However, this positive factor, Li, added, is tempered by its moderate scale and diversification and by the “institutional risks” present in India when compared to other major global refining and marketing companies.

On these factors, the company is rated Ba. Though its financial flexibility indicates a Baa type category rating, when all these factors are considered, Reliance is “appropriately positioned at Baa2”, she added.

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