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    Moody's could upgrade Reliance Industries' outlook if it maintains 3 vital metrics

    Moody's could upgrade Reliance Industries' outlook if it maintains 3 vital metrics

    Moody's could upgrade Reliance Industries' outlook if it maintains 3 vital metrics
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    By Mousumi Paul   IST (Published)

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    Given the business expansion and future financial strategies announced by Reliance Industries, Moody’s Investor’s Service has affirmed RIL’s Baa2 domestic long-term issuer rating and foreign currency senior unsecured rating, with ‘stable’ outlook.

    Considering business expansion and future financial strategies announced by Reliance Industries, Moody’s Investors Service affirmed RIL’s Baa2 domestic long-term issuer rating and foreign currency senior unsecured rating, with ‘stable’ outlook. the company could receive a rating upgrade in the future, said Moody’s.
    The rating agency said that the upgrade will only come through three core metrics- if (1) the sovereign rating is maintained at ‘Baa2’ with a return in the outlook to stable, (2) it starts generating positive free cash flow, and (3) it completes its planned assets sales and reduces its net borrowings.
    Vikas Halan, a Moody's Senior Vice President said, “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.”
    "The affirmation also incorporates our 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," added Halan.
    Moody’s also expects that by fiscal 2022, RIL’s hydrocarbon businesses will account for about 50 percent of consolidated EBITDA. The rating agency further believes that the adjusted net debt/EBITDA will stay stable at 2.8x by March 2020 compared to 2.9x for March 2019 and below Moody's downgrade threshold of 3x.
    However, one major concern that Moody’s pointed out is RIL’s dependence on the Indian economy. And since India's Baa2 sovereign rating has a negative outlook, Moody’s say that there is little room to upgrade RIL's ratings.
    Few other concerns pointed out by Moody’s in the report are increased exposure to environmental regulations via its refining businesses, social risks from changing consumer preferences, government's initiative to cut single-use plastics consumption, aggressive financial strategy and 50 percent control over company’s equity by Mukesh Ambani, Chairman and MD of RIL himself.
    Nevertheless, Moody’s report did confirm that the company could receive an upgrade in the future if it continues to generate positive cash flow, reduce net borrowings and maintains its sovereign rating at Baa2.
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