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Business News/ Companies / RIL’s telecom plans risky: Moody’s
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RIL’s telecom plans risky: Moody’s

RIL’s telecom plans risky: Moody’s

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New Delhi: International rating agency Moody’s on Monday said the risk profile of Reliance Industries Ltd. (RIL) 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 $6 billion, and $7-8 billion in projected annual cash flow, can easily accommodate the price tag for Infotel and the expected $2-3 billion in additional capital outlays (excluding licence fees) during the initial years," it said.

Earlier this month, RIL acquired 95% stake in Infotel for Rs4,800 crore (a tad over $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 longterm 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 higher cost.

“Prices for 4G spectrum are at about the level where 3G prices were 10 years ago when European telcos paid $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 $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.

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Published: 21 Jun 2010, 04:57 PM IST
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