PERFORMANCE JOLT

Mumbai, Dec. 31: The country’s largest oil refiners — Reliance Industries Ltd (RIL) and Indian Oil Corporation (IOC) — received a rating jolt on the last day of 2008 when Standard & Poor’s Ratings Services (S&P) lowered the outlook on RIL to negative from stable and downgraded IOC to BB+ from BBB-.

IOC now slides from investment grade to speculative grade. S&P, however, affirmed the BBB long-term rating on RIL. It explained that the outlook revision on Reliance Industries reflected the company’s increased debt and pressure on profitability.

According to the rating agency, the downturn in commodities and oil refining, stemming from the global economic slowdown, had affected profitability.

Industry analysts have been voicing concerns about RIL’s refining margins. These worries have seen the RIL stock taking a knock of around 57 per cent this year. On the BSE today, the share ended lower by 1.8 per cent at Rs 1,226.50.

S&P added that the company’s cash flow measures were expected to improve after its Jamnagar refinery became fully operational.

S&P cautioned that RIL’s rating was likely to be lowered if the company was severely hit by the sharp downturn in the commodity cycle or if it continued to maintain high debt levels. Such a scenario would result in weaker credit protection measures with debt to EBITDA (earnings before interest, tax, depreciation and amortisation) of more than 2.2 times on a sustained basis.

In IOC, S&P lowered the rating BB+ from BBB-. The outlook is stable.

The action, S&P said, is on account of the deterioration in the company’s financial profile and liquidity position and delays in adequate support from the government of India.