Agencies differ on RIL rating after LB bid

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Mumbai: The outlook for Reliance Industries (RIL) has shown mixed ratings from various credit rating agencies, following the submission of bid for LyondellBasell Industries (LB).

While Standard & Poor’s (S&P) remains negative on the outlook for RIL, Crisil and Fitch Ratings have declared a ‘stable’ rating for the same.

According to S&P, the consolidated financial metrics of RIL could weaken over the next 12 months if the company proceeds with a proposal to acquire Netherlands-based LB, thereby providing a negative rating. Although S&P acknowledges that the transaction could bring some strategic benefits, it believes the synergies would be limited.

“The acquisition would weaken RIL’s metrics even after factoring in the company’s cash and cash equivalent of about $4 billion as at September 30, 2009. However, we believe that its financial risk profile could change if competitive bidding from other interested companies increases the bid price,” said Yasmin Wirjawan, credit analyst with S&P.

“The negative rating outlook on our rating for RIL also factors in the relatively weak global economic environment, which has undermined the profitability of commodity-related companies like RIL and LB,” said S&P’s credit analyst, Suzanne Smith, managing director, corporate & government ratings, South and Southeast Asia.

Meanwhile, Crisil believes a ‘stable’ outlook on the fact that RIL’s debt will not increase from its current levels. This should lead to an improvement in RIL’s capital structure over the medium term. Furthermore, Crisil also believes that RIL’s cash levels will be replenished soon, as the accruals remain strong. However, the rating outlook will be revised to ‘negative’ if RIL extends any financial support to LBI, or if RIL’s debt levels increase.