Fitch Ratings has affirmed India-based Reliance Industries Limited's (RIL) Long-Term Foreign Currency Issuer Default Rating (LT FC IDR) at 'BBB-', LT Local Currency IDR (LC IDR) at 'BBB' and National LT Rating at 'Fitch AAA(ind)'.
The Outlook on the LC IDR is Positive. The Outlooks on the FC IDR and the National LT Rating are Stable. A list of additional rating actions is provided at the end of this commentary.
The ratings reflect RIL's strong business profile in the oil and gas business with vertical diversification across the supply chain (upstream, refining and petrochemicals), efficient refining operations and dominant position in the Indian petrochemicals sector.
The ratings also reflect the company's large scale of operations in key product lines, demonstrated ability to generate robust cash flow from operations (CFOs) and a strong liquidity position.
In FY11 (financial year ending March), RIL's upstream, refining and petrochemicals operations contributed 26.2% (FY10: 25.5%), 35.8% (29.7%) and 37.2% (42.3%) to its EBIT, respectively, reflecting a balanced business profile.
However, upstream EBIT contribution reduced in 9MFY12 to 22.5%, and is likely to fall further in the short-term. This is because of consistently reducing natural gas production at Krishna Godavari (KGD6) block since FY11 and the sale of RIL's 30% stake in its 21 Indian oil and gas blocks to BP ('A'/Stable) in Q2FY12.
However, the latter also led to RIL raising USD7.2bn, thus substantially increasing its cash reserves and eliminating any immediate credit concern from falling cash generation from its Indian upstream operations. Furthermore, RIL will likely benefit from increased production from its US shale gas JVs from FY13.
