Moody’s rates Reliance’s $5-billion bond issue a notch above India’s rating; explains why it didn’t go higher

Reliance last week said it will raise as much as USD 5 billion in foreign currency denominated bonds and use the proceeds to retire existing borrowings.

reliance industries, RIL Q3
Analysts expect the oil-to-telecom conglomerate to post better numbers than the previous quarter.

Moody’s Investors Service on Tuesday assigned a Baa2 rating to the proposed USD-denominated senior unsecured bonds of Reliance Industries Limited (RIL), with stable outlook.

Reliance last week said it will raise as much as USD 5 billion in foreign currency denominated bonds and use the proceeds to retire existing borrowings.

“RIL’s Baa2 ratings reflect the company’s large scale and dominant market position across its diverse businesses, its management’s strong execution track record and our expectation that its credit metrics will remain strongly positioned for its Baa2 rating, despite its planned investments in clean energy and other business segments,” Sweta Patodia, a Moody’s Analyst, said in the rating agency’s press statement.

The firm’s high dependence on the Indian economy through its digital services and retail businesses constrains its rating to one notch above that of the Indian sovereign rating, Patodia said.

Moody’s said RIL benefits from diversified earnings sources that have little or no correlation, given its presence in the refining and petrochemicals, digital services, and consumer retail segments. These three segments together generated around Rs 94,400 crore (USD 12.6 billion) or 86 per cent of RIL’s consolidated EBITDA for the 12 months ended September 30, 2021.

The company’s digital services and consumer retail businesses are housed under separate subsidiaries, while its refining and the petrochemical business — also known as the oil-to-chemical (O2C) segment — is held at the holding company level.

RIL’s announcement to increase tariffs for its digital services business is positive for the telecommunications industry, while the easing of pandemic-related disruptions will support demand for oil and gas as well as increase consumer spending. These trends bode well for RIL’s various business segments and will keep earnings strong over the next 12-18 months, Moody’s said.

“A resurgence of coronavirus infections due to the emergence of new variants could result in fresh lockdowns and affect the company’s O2C and retail earnings,” it said.

RIL’s earlier announcements to transfer its gasification undertaking into a wholly-owned subsidiary while reevaluating the planned transfer of its O2C business to a separate subsidiary will not have any impact on the company’s credit profile.

“The stable outlook reflects Moody’s expectation that the company’s earnings will continue to improve over the next 12-18 months across all its business segments, such that its credit metrics will remain strongly positioned for its ratings,” the statement said adding the stable outlook is also in line with the stable outlook of the Indian sovereign rating and reflects Moody’s view that RIL cannot be rated more than one notch above the Indian sovereign.

RIL has excellent liquidity. As of September 30, 2021, the company had adjusted cash and cash equivalents, including quoted marketable securities, of about Rs 1.9 lakh crore (USD 25.6 billion). Its existing cash, along with expected cash flows from operations, will be sufficient to cover its cash outflows for capital spending and debt maturities in the next 18 months.

In November 2021, RIL received around Rs 26,600 crore in proceeds from the final call on its rights issue, which further enhances its liquidity. The company’s liquidity is further supported by its strong banking relationships and access to domestic and international capital markets, Moody’s said.

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