Mumbai, Dec. 29: Standard & Poor’s Rating Services (S&P) today cautioned against Reliance Industries Ltd’s (RIL) capital expenditure programme of Rs 61,700 crore. According to the agency, given the softening petrochemical cycle and uncertainties in its upstream gas business, lower-than-expected cash flows to fund this capex may weaken its credit protection measures.

This came even as S&P affirmed its long-term foreign and local currency ratings on RIL at BBB with a stable outlook.

S&P’s credit analyst Anshukant Taneja said when viewed against the backdrop of a softening petrochemical cycle and reduced demand for refined petroleum products, lower-than-anticipated cash flows could mean higher borrowings to fund such a capex plan.

However, Taneja said RIL’s current financial position, strong liquidity, and access to financial resources help mitigate some of these risks.

According to S&P, the affirmation in its rating reflects Reliance’s dominant competitive position, the relatively stable medium-term prospects for its core refining and petrochemical businesses, and an overall moderate financial profile of the company.

The ratings also factor in the likelihood of timely completion of its ongoing projects, particularly the new refinery at Jamnagar. S&P added that the ratings are also underpinned by the expectation that Reliance would pursue its non-core businesses, specifically investments in the retail sector, in a modular phased-out manner, as an accelerated investment strategy can weigh on the company’s overall credit profile.

“The ratings remain constrained by Reliance’s exposure to highly cyclical industries, large capital commitments in its refining, exploration and production businesses, and uncertainties in developing its reportedly large gas reserves,” Taneja said.

During the second quarter of this fiscal, RIL reported a 9.18 per cent rise in its net profit at Rs 2,709 crore as its petrochemical business performed well.

The petrochemical business made up for the challenges that the company witnessed in its refining business during the period.

RIL recorded a net turnover of Rs 28,474 crore against Rs 20,717 crore in the same period last year.

The refinery of Reliance Petroleum Ltd (RPL) in which RIL holds a 75 per cent stake, is scheduled for completion by December 2008.