Moody's ups RIL rating

Global rating agency Moody's Investors Service today upgraded Reliance Industries Ltd's rating to BAA2 from BAA3, reflecting a stable outlook.

Moody's expects that the demerger will improve the efficiency of the largest domestic petrochemical company.

The rating agency has also upgraded its foreign currency bond rating to BAA2 from BAA3 with a stable outlook.

The upgrade in the rating exercise reflects the completion of the demerger of its telecom, energy and financial services businesses. It also takes note of the fact that shares in these separate groups have been distributed to respective shareholders.

"The demerger was essentially a non-cash transaction which did not lead to any significant cash outflow. It has helped reduce uncertainties related to contingent financial risks or support attached to its associated investments.

These include capital-intensive telecom companies, now separated from Reliance," Moody's stated in a press release.

"The demerger will also preserve the operational efficiencies and synergies within the company's refining and petrochemical businesses," Moody's lead analyst Helen Li said.

In accordance with its global rating methodology for refining and marketing companies, Moody's has opined that Reliance's profile indicates a placement in the BAA category, consistent with its current rating.

The rating agency pointed out that the rating could even improve if Reliance demonstrates a continued track record in executing its expansion plans, so that its scale and diversity improves.

Alternatively, improvement in institutional and regulatory framework in India would be positive for the rating, but that alone would not drive a rating change, Moody's added.

On the other hand, Moody's has also cautioned that the ratings would experience a downward pressure if Reliance undertakes aggressive debt-funded capital investments or acquisition plans.

This also holds true in case the company returns cash to shareholders "" via debt-funded share buybacks "" and beyond its dividend payout policy of 20-30 per cent, or engages in non-core operations, adding to its business and financial risks and causing deterioration of its financial profile.