Moody's cuts RIL credit outlook to stable but affirms ratings

Moody's said the country's richest and most profitable company will see large cash outflow over the next 18 months towards paying back its creditors for the billions of dollars of capex it had incurred on telecom business as well refining and petrochemical expansions in the past few years.

This will lead the energy and telecom conglomerate, which already is the largest forex borrower in the country, to tap the debt market more as a result of which it will not be able to reduce its debt and also its free cash flow to be in the negative territory for next 18 months or so, it warned.

However, it noted that though the refining and petrochem capex is almost complete, the cash outflow will still remain high as payments to creditors for the past capex are made over the next 12-18 months.

For the quarter to September, RIL, which has a Rs 6 trillion market capitalisation, saw its cash pile falling to Rs 77,014 crore at the same time its debt swelled to Rs 2,14,145 crore from Rs 1,96,601 crore.

"Such payments along with additional capex towards telecom will constrain any reduction in net borrowings until fiscal 2019," Moody's warned in a weekend note.

"Accordingly, we've revised our outlook on RIL's long-term issuer rating to stable from positive, but the outlook on its foreign currency senior unsecured rating is maintained at stable. The outlook on Reliance Holding US is also maintained at stable," Moody's said.

"The change in the outlook on the Baa2 rating reflects the increase in its business risks due to the growing digital services segment and our expectation that the high capex will keep its free cash-flow negative for at least next 18 months," it said.

The company has invested over Rs 1.4 trillion into its telecom arm Reliance Jio while it's at the fag-end of its refining and petrochemical expansion worth over Rs 1 trillion.

The company expects Jio, which reported a Rs 260 crore operational profit in the September quarter with a R 271 crore net loss, to turn in first set of profits in the current fiscal itself.

The oil-to-telecom conglomerate reported a 12.5 per cent jump in September quarter net after refining margin soared to a nine-year high and mobile telephony venture earned operational profit.

It earned a net income of Rs 8,109 crore, or Rs 13.7 per share, as it could earn USD 12 on turning every barrel of crude oil into fuel, up from USD 10.1 a barrel gross refining margin in same quarter of previous year and USD 11.9 a barrel in first quarter of the current fiscal. Total revenue was up 23.9 per cent to Rs 1,01,169 crore.

"The Baa2 rating affirmation reflects our expectation that RIL's credit metrics will recover over the next 12-18 months and be better positioned for the ratings as it continues to increase its earnings from the recently completed and ongoing projects in the refining and petrochemical segments," said Vikas Halan, a vice-president and senior credit officer at Moody's and its lead analyst for RIL, said.

The Baa2 ratings also reflect the strong ability of RIL to generate operating cash flows, with annual Ebitda exceeding USD 10 billion from its large-scale integrated refining and petrochemical operations with strong margins and its nascent but growing digital services business, he added.