Mukesh Ambani’s big bet for growth got a thumbs-up on Wednesday when rating agency Standard & Poor's (S&P) raised the long-term corporate credit rating on his Reliance Industries Ltd (RIL) to “BBB+” from “BBB” in a vote for its expansion plans.. that involves spending of Rs 165,000 crore.
This the highest rating given so far to an Indian company and is two notches above India’s sovereign rating, RIL sources said.
The agency signalled RIL was poised to put to good use its huge cash pile of Rs 83,000 crore, which is being invested in areas ranging from oil exploration to an ambitious foray into 4G telecoms.
S&P also raised the company’s long-term issue ratings on unsecured bonds issued by Reliance and its US subsidiary-Reliance Holding USA Inc.
“We upgraded Reliance because we believe the company’s strategy to grow organically will strengthen its competitive position and support its profitability,” said Andrew Wong, credit analyst, S&P. “Reliance’s articulation of its growth strategy removes the uncertainty regarding the company's use of its high cash balance.”
The rating agency said it now has a "greater clarity on Reliance’s expansion strategy as the company intends to spend more than $30 billion (R1,65,000 crore) on growth over the next three years, of which at least 75% will be toward its core businesses of refining, petrochemical, and exploration and production (E&P)."
“The planned capital spending is also likely to result in better operating performance for Reliance over the next three to four years,” said Wong.
Market analyst SP Tulsian said the upgrade will help RIL. “This is very crucial for RIL for raising money from the international market. It is a big positive. RIL has raised $ 12 billion from the international markets.”
However, despite the ratings upgrade, S&P maintained a negative outlook on RIL.
S&P also said that it “could lower the rating on Reliance” if the agency lowers its transfer and convertibility assessment on India, which could happen if S&P downgraded the sovereign rating. “We could revise the outlook to stable if the outlook on the sovereign credit rating is revised to stable,” it said.
RIL may also announce some big-bang acquisitions in line with its expansion plans, sources close to the company said.
Market analysts said any meaningful earnings addition from the company are expected only in 2016-17, when its large projects such as pet coke gasification or off-gas cracker gets commissioned, but, the recent mega discovery in the KG-D6 block and the company’s plans to increase production from the already producing fields will add to the company’s fortunes.
Analaysts and brolerages have already termed the discovery as a “game-changer” for the company.
Brokerages, however, maintained a subdued outlook on RIL’s core business, which accounts for 90% of earnings.
“We maintain a neutral outlook on RIL stocks,” said Harshad Borwake and Kunal Gupta from broking firm Motilal Oswal in a recent research report.