The move by Reliance Industries (RIL) to set up a joint venture with the US-based Atlas Energy will help it expand geographically and diversify into unconventional energy sources in the North American market, ratings agency Moody's said today.
Affirming Baa2 ratings (medium grade rating reflecting moderate credit risk), Moody's said that RIL will gain in gas reserves and production growth from the deal as the JV will combine RIL's financial strengths with Atlas' expertise in unconventional gas deposits.
The rating agency in a statement said apart from $1.7 billion that RIL will invest in the JV to produce gas from shale, sedimentary rocks, in Marcellus region, the company will spend $3.4 billion in development costs over the next 10 years.
The agency said the operating and investment risks associated with RIL's acquisition last week of 40 per cent interest in 3,00,000 acres of the Marcellus shale gas assets, owned by Atlas, actually have a couple of mitigating factors.
"These risks are mitigated by two factors: The investment will be staggered over the next 10 years, and the company's funding flexibility will increase with the incremental cash flows coming from RIL's gas production assets in the KG-D6 basin and its second refinery at Jamnagar," Moody's said.
Assigning a 'stable outlook' to the JV, Moody's noted that Reliance has a strong liquidity position and holds around $5 billion cash on its balance sheet for initial payment.
RIL had also raised $2 billion by selling treasury shares during its $14.5 billion unsuccessful bid to acquire a controlling stake in LyondellBasell Industries.
"The rating affirmation reflects that RIL has sufficient balance sheet flexibility to accommodate the transaction given the relatively small size of the initial investment and the staggered development plan," Moody's said.
