S&P warns Reliance on settlement

Global ratings agency Standard and Poor's today cautioned that any substantial cash payment towards the settlement between the two Ambani brothers over the ownership of the Reliance group could impact its flagship company adversely.

"Reliance Industries' business and financial profiles could weaken materially if the settlement involves substantial cash payments by RIL, resulting in increased financial leverage or a transfer of any of its core oil refining and petrochemical businesses," S&P said in a release issued in Singapore.

The news of a potential settlement between the warring Ambani brothers was "by itself not expected to have an immediate impact" on Reliance Industries's rating, S&P said. The current rating of Reliance Industries by the global investment research firm stands at BB+, with a stable outlook.

The outlook on the rating was stable, with an exception of material adverse developments in the settlement between Reliance Industries Chairman Mukesh Ambani and Vice-Chairman Anil Ambani, it said.

If the settlement results in a transfer of the group's telecommunications, power and energy businesses to the Reliance Industries vice-chairman Anil Ambani, then it is not expected to harm RIL's business and financial profiles. This may also have a positive bearing on RIL.

The company's debt-servicing ability is adequate and EBITDA interest coverage is estimated at 6x and its debt to capitalisation is below 40 per cent for fiscal 2005.

S&P also said that RIL's liquidity has improved from the previous year, with cash and liquid investments for fiscal 2005 adequately covering the debt falling due over the next one year.

Going forward, RIL is expected to maintain adequate liquidity, although a part of the resources is likely to be deployed for the company's planned capital expenditures.

S&P also expects that the final settlement would balance the interests of all involved parties, including the lenders and the shareholders, given RIL's prominent position in India's private corporate sector and its linkages with the domestic and international banking system and capital markets.

The share prices of RIL rallied after the news of the settlement and closed at Rs 559 on Thursday, up by Rs 19 from the closing price of Rs 540.40 posted on June 1, 2005.