The move by Reliance Industries (RIL) to acquire Infotel Broadband will help it tap into India's mobile broadband market, but it entails significant risks, global rating agency Moody's said today.
Last week, RIL acquired 95 per cent stake in Infotel for Rs 4,800 crore (around $1 billion), soon after Infotel bagged pan-India licence for Broadband Wireless Access (BWA).
Moody's said while the transaction enables RIL to tap into India's potentially high-growth mobile broadband market, it entails significant "technological, operational and commercial risks, given the fairly nascent stage of commercial roll-out globally".
Affirming Baa2 ratings (medium grade rating reflecting moderate credit risk), with a stable outlook, Moody's said RIL has substantial balance sheet flexibility.
It said RIL's strength can comfortably cater for the investment and capital outlay of $4-5 billion in the initial years, including $2.8 billion licence fees this year for 22 telecom circles, Pan-India.
"Moody's Investors Service today affirmed the Baa2 issuer and senior unsecured ratings of RIL with a stable outlook," the ratings agency said in a global statement.
More From This Section
It said, however, that the transaction represents a significant strategic shift from RIL's existing hydrocarbon business. "This potentially increases event risk, particularly as regards potential future plans for diversification away from the core oil & gas business."
It said the Baa2 rating takes into account that RIL will continue to use its financial flexibility to accommodate acquisitions that will enhance its growth potential as well as its business and geographical diversification. This is likely to include further acquisitions in its core energy business.