Standard & Poor's ratings services today assigned its 'BBB' long-term issue rating to the proposed US-dollar-denominated senior unsecured perpetual notes by Reliance Industries. The notes will rank equally with all the company's other present and future unsecured and unsubordinated obligations.
The rating is subject to our review of the final issuance documentation. Reliance intends to use the proceeds to fund its ongoing capital expenditure in the exploration and refining sector in India.
"The rating on Reliance reflects the company's strong competitive position and good business diversity. In addition, the company has low leverage, and strong cash flows and liquidity," Standard & Poor's said in a press statement adding, "The following factors temper these strengths: Reliance's vulnerability to the cyclical nature of its industries and commodity prices; the company's exposure to country risks in India and falling production at Krishna Godavari basin; and its aggressive growth strategy."
"Reliance's "satisfactory" business risk profile reflects the company's competitive strength, which we attribute to its large scale and integrated and efficient oil refining and petrochemicals operations," it said.
Reliance's "intermediate" financial risk profile reflects the company's low debt. We expect Reliance's ratio of debt to EBITDA to be below 1.2x for the next two years. We have adjusted the debt for cash and cash equivalents exceeding Rs 75 billion. Nevertheless, the company's use of its high cash holdings of more than $14 billion will highly influence its financial metrics.
The positive rating outlook on Reliance reflects our view that the company has a large cash surplus to protect its financial strength against any potential deterioration in operating conditions.