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RIL's telecom plans risky: Moody's

International rating agency Moody's today said the risk profile of Reliance Industries has increased following its entry into untested telecom space by acquiring Infotel Broadband Services, but has retained the outlook of the Mukesh Ambani-owned company.

india Updated: Jun 21, 2010 17:32 IST

International rating agency Moody's on Monday said the risk profile of Reliance Industries has increased following its entry into untested telecom space by acquiring Infotel Broadband Services, but has retained the outlook of the Mukesh Ambani-owned company.

Despite the increased business risks, the rating agency affirmed Baa2 ratings, three notches down from the highest grade, with a stable outlook for RIL, Moody's Investor Service said in its weekly outlook.

"Its strong financial balance sheet, with current cash and cash equivalents of more than USD 6 billion, and USD 7-8 billion in projected annual cash flow, can easily accommodate the price tag for Infotel and the expected USD 2-3 billion in additional capital outlays (excluding licence fees) during the initial years," it said.

Earlier this month, RIL acquired 95 per cent stake in Infotel for Rs 4,800 crore (a tad over USD 1 billion), soon after the HFCL Group promoted Infotel bagged the national licence for broadband wireless access (BWA) radio waves.

The buyout, it said, has "negative credit implications by making a strategic move into the untested but promising wireless broadband spectrum technology in the country".

However, it added, RIL's move represents a big bet on the future of the highend communications market in the country.

As part of its telecom foray with the Infotel deal, RIL is opting for an unproven long-term evolution (LTE) 4G technology that has had commercial trials so far only in Norway and Sweden. Moody's further said the ADAG Group's Reliance Communications and Vodafone, both of which participated in the 3G auctions, pulled out of the BWA auctions, citing high cost.

"Prices for 4G spectrum are at about the level where 3G prices were 10 years ago when European telcos paid USD 100 billion for licences. Nevertheless, RIL has calculated that nationwide access to the world’s fastest-growing telecom market, which is adding up to 20 million new mobile subscribers a month, is worth the price," it said.

Moody's said RIL's increasing appetite for growth and diversification in geography, sectors, and relatively unproven technologies is also demonstrated in its shale gas deal with US-based Atlas Energy.

In April, RIL struck a deal with Atlas Energy to invest USD 5.2 billion over the next 10 years on a joint venture to develop shale gas reserves in the Eastern US, it said, adding, the the company was also reported to be in talks to invest with Pioneer Natural Resources to exploit similar reserves in the Southwestern US.