Reliance Industries Ltd - Moody's affirms Reliance Industries' Baa2 rating

Reliance Industries Ltd has informed that Moody's Investors Service on December 03, 2007 affirmed the Baa2 issuer and senior unsecured rating of Reliance Industries Ltd (RIL) with stable outlook.

In a press release issued from Hong Kong this morning, Terry Fanous, Senior Vice President of Moody's said, "The Baa2 rating reflects RIL's well-established and integrated production facilities and its globally competitive refining operations, which command higher margins relative to many of its competitors." Fanous further added, "The rating also recognizes RIL's moderate financial leverage and its substantial operating cash flow generation."

At the same time, the Baa2 ratings reflect RIL's sizable expansionary plans, which require high capital investments, and entail execution risk, and its exposure to single-site complex, where most of its operations are located.

RIL's operating cash flow generating capacity will be materially enhanced over the next 12-24 months, after the planned commissioning of the new Jamnagar greenfield refinery and the domestic gas project. At the same time, RIL has plans to undertake substantial investments in refining, petrochemicals, and E&P, as well as the retail sector.

RIL is well positioned in the Baa2 rating, which assumes that the Company's investments will be made in a manner that would not materially weaken its financial profile.

The rating could be upgraded if RIL demonstrates a continued track record in maintaining its current strong financial profile as it executes its expansion plan so that its scale and diversity strengthens. Credit measures that Moody's would look for include maintaining RCF / Debt ratio above 25%-30% and EBIT / Interest above 8.0x on a consistent basis.

On the other hand, the rating would experience downward pressure if Reliance a) undertakes aggressive debt-funded capital investments or acquisition plans, b) returns cash to shareholders beyond its dividend payout policy of 20-25%, and c) its profitability deteriorates due weakening operating environment, such that RCF / debt drops below 20% and EBIT / Interest coverage falls below 4x on a consistent basis.