Moody's Investors Service (Moody's) on Thursday affirmed Reliance Industries Limited's (RIL) Baa2 domestic long-term issuer rating and foreign currency senior unsecured rating.
Moody's also affirmed the Baa2 backed domestic currency senior unsecured debt ratings on the dollar-denominated bonds issued by Reliance Holding USA, Inc., with a guarantee from RIL. The outlook on the ratings above is stable.
"The rating affirmation reflects the significant improvement in RIL's scale and business mix over the last two years, as it reaps the benefits from its investments over the last five years in its hydrocarbon and consumer businesses," said Vikas Halan, a Moody's Senior Vice President.
Moody's added that the affirmation also incorporates its expectation that RIL's credit metrics will remain appropriate for its Baa2 ratings over the next 12-18 months, as the company has completed its investment cycle and will start reducing its borrowings through higher earnings.
Over the last five years, RIL has spent ₹3.6 trillion on increasing its refinery complexity, expanding its petrochemical capacity, building its digital services business and expanding its retail business. In addition to the improved efficiency and scale of the legacy refining and petrochemical segments, RIL has also added highly resilient digital services and retail segments into its business mix.
RIL's Jamnagar refinery complexity increased to 21.1 as of March 2019 from 12.7 as of March 2018. It's petrochemical production also increased to 37.7 million tons for the fiscal year ended 31 March 2019 from 24.9 million tons for fiscal 2017. Meanwhile, Reliance Jio--RIL's digital business subsidiary has emerged as the second-largest telecommunications operator in India, with 355 million subscribers as of 30 September 2019.
Supported by these improvements, RIL's earnings before interest, tax, depreciation, and amortization (Ebitda) increased by 71.6% to Rs959 billion for fiscal 2019 from ₹559 billion for fiscal 2017. The composition of Ebitda has also become more balanced between the hydrocarbon and consumer businesses. Moody's expects that by fiscal 2022, the hydrocarbon businesses will only account for about 50% of RIL's consolidated Ebitda.
Given the change in RIL's business mix, Moody's no longer views RIL as only an oil refining and marketing company but a mix of diverse businesses, it said.
"The affirmation of RIL's Baa2 ratings with a stable outlook at a time when India's Baa2 sovereign rating carries a negative outlook also reflects our view that RIL's ratings can be maintained one notch above the sovereign, even if the sovereign rating is downgraded to Baa3," added Halan, also Moody's Lead Analyst for RIL.
RIL's ratings will be constrained to no more than one notch above the sovereign rating, given the increase in RIL's dependence on the Indian economy through its consumer businesses, Moody's added.