S&P downgrades RIL and IOC

01 January 2009

India's largest oil refiners, Reliance Industries Ltd  and Indian Oil Corporation ended the year badly as Standard & Poor's Ratings Services (S&P) downgrades both the companies.

The rating agency has revised its rating outlook on India's Reliance Industries Ltd to negative from stable. At the same time it affirmed its 'BBB' long-term corporate credit rating on Reliance Industries, while lowering its corporate credit rating on India's largest petroleum company Indian Oil Corp. Ltd. (IOC) to 'BB+' from 'BBB-' with a stable outlook.

Reliance Industries
The outlook revision on Reliance Industries, India's largest private sector company, reflects the company's increased debt and pressure on profitability.

The downturn in commodities and oil refining, stemming from the global economic slowdown, has affected profitability, which S&P expects would weaken the company's cash flow measures, including adjusted debt to EBITDA rising above 2.5x in the near term, but higher than its earlier expectations of about 2.0x.

"However, we do expect the ratio to improve somewhat in the medium term," it aded.

It also said that Reliance Industries' cash flow measures were expected to improve after its Jamnagar refinery becomes fully operational and "we expect its production to be ramped up to almost full capacity in fiscal 2010." The refinery came onstream in December 2008.

The company's liquidity is strong with cash of about $5.3 billion as at 30 November 2008, enough to cover about $3 billion debt due in one year. S&P said the company is likely to use about $1.5 billion for working capital requirements with the new Jamnagar refinery.