New Delhi: Ratings agency Standard & Poor’s (S&P) on Monday said that the proposed dollar-denominated notes to be issued by Reliance Holding USA, a subsidiary of Reliance Industries, are backed by adequate financial strength.
S&P assigned a rating of BBB to the unsecured notes, with a stable outlook, which symbolises adequate capacity to meet financial commitments. S&P’s ratings services on Monday assigned its BBB issue rating to the proposed senior unsecured notes due 2020 and the proposed senior unsecured notes due 2040 to be issued by Reliance Holding USA, an indirect wholly owned subsidiary of India-based Reliance Industries, it said.
The notes will be fully guaranteed by Reliance India Ltd (RIL) and the issue ratings is subject to final documentation and verification of details of the US dollar-denominated notes, S&P added.
Reliance Holding USA expects to use the proceeds from the bond issue to refinance debt used to fund a portion of the acquisition costs of shale gas assets in the US.
Besides, a portion of it would also be used for investing in shale gas businesses and for general corporate purposes.
The corporate credit rating on RIL reflects the company’s strong competitive position, which along with business diversity is expected to help generate stable cash flows. These strengths are offset by the company’s exposure to cyclical industries and commodity prices, and management’s aggressive growth strategy, S&P said.
Terming RIL’s risk profile as intermediate, the ratings agency said its cash flow protection measures improved in the last fiscal. “The better financial metrics came from improved operating performance and debt reduction—made possible by the sale of treasury stocks. We expect the company’s financial metrics to further improve in fiscal 2011,” S&P said.
It added that the Indian conglomerate is also expected to continue investing most of its internal cash flows in new expansion projects or businesses.
“The stable outlook on the corporate credit rating reflects our expectations of stable cash flows over the next several years from RIL’s existing businesses. It also reflects our expectation that the company will maintain its intermediate financial risk profile by funding most of its capital expenditure from internal cash flows or cash on hand,” S&P said.