Reliance credit quality not impacted by Aramco decision: Moody’s

By: |
November 23, 2021 5:50 PM

On November 19, the conglomerate announced that it will reevaluate the transfer of its oil-to-chemical (O2C) business - comprising its refining, marketing and petrochemical operations - to a wholly-owned subsidiary.

Moody's explained that despite an increase in debt, deferred spectrum payments have limited immediate impact on operators' liquidity and cash flow.Moody's explained that despite an increase in debt, deferred spectrum payments have limited immediate impact on operators' liquidity and cash flow.

The reevaluation of the decision to sell a 20 per cent stake in Reliance Industries Ltd’s oil-to-chemical business to Saudi Aramco will not impact the firm’s credit quality, Moody’s Investors Service said Tuesday.

On November 19, the conglomerate announced that it will reevaluate the transfer of its oil-to-chemical (O2C) business – comprising its refining, marketing and petrochemical operations – to a wholly-owned subsidiary.

The proposed business reorganisation was intended to enable RIL to sell a stake in its O2C segment to strategic investors, including Saudi Arabian Oil Company (Aramco).

“The sale would have strengthened the company’s balance sheet and liquidity as it continues to incur capital spending for its digital services, and new energy and retail businesses,” Moody’s said in a note.

“The decision to reevaluate the transfer and the stake sale will not impact RIL’s credit quality because the company already has a strong balance sheet to accommodate future investments required for its various businesses.” RIL has a rating downgrade trigger of net debt/EBITDA of 3.0x, but the company reported a net cash position as of September 30, 2021.

In addition, it is expected to generate sufficient cash flows from operations each year to fund its capital spending.
“RIL’s announcement to revisit its earlier plan of divesting stake in its O2C business will allow the company to reassess the interlinkages and synergies between its legacy O2C business and its new energy business that was announced recently. This will be important as the company has a target of achieving carbon neutrality by 2035,” it said.

The Jamnagar refinery complex in Gujarat, which houses the bulk of the company’s O2C assets, will also be the incubation centre for its new energy business.

“RIL expects Aramco will remain a strategic partner for its existing businesses for crude oil sourcing arrangements and for other future opportunities that could arise as its business evolves to adapt to changing energy requirements globally,” Moody’s added.

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