March 3, 2002 keralamonitor.com
Reliance Industries Limited Rs. 3.0 billion Non-Convertible Debenture issue AAA (Re-affirmed)
Rs. 37.6 billion Non-Convertible Debenture issues AAA (Re-affirmed)
Rs. 16.0 billion Short Term Debt programme P1+ (Re-affirmed)The outstanding 'AAA' and 'P1+' ratings on the various debt instruments of Reliance Industries Limited (RIL) have been re-affirmed following the company's decision today to merge its group company - Reliance Petroleum Limited (RPL) - with itself.
The re-affirmation of the ratings reflects CRISIL's opinion that, following the merger, RIL's business and financial risk profile would continue to remain favourable. The merger would result in RIL becoming India's largest private-sector company having a leading and well-integrated presence extending from oil refining to downstream polymers, fibre-intermediates, and polyester segments. In each of these activities, the company's world-scale capacities provide it with significant economies of scale and a sustainable competitive advantage. Further, from a debt-holder's perspective, the company's large cash accruals, favourable cash debt-service coverage ratios, and high financial flexibility are significant comfort factors. RIL's capital structure and interest coverage ratios are currently moderate. Nevertheless, these are expected to improve to comfortable levels over the next 2-3 years, even after considering its planned investments in setting-up a marketing network for petroleum products and/ or bidding for one of the public sector oil companies that the Government of India plans to dis-invest. RIL has significant investments through equity/ debt/ guarantees in the group's telecom ventures and CRISIL has factored in the management's current strategy into the rating.
RIL is primarily engaged in the business of petrochemicals (polymers, fibre-intermediates, polyesters, and other chemicals), oil and gas production and exploration, and textiles. The company's plants are located at Patalganga (Maharashtra) and Naroda, Hazira, and Jamnagar (all in Gujarat). RPL, currently 64% owned by RIL, operates a 27 MTPA oil refinery at Jamnagar. In the evaluation contained in this report, RIL refers to the merged RIL-RPL entity. Following the merger, refining would account for about 55% of RIL's turnover and petrochemicals for the balance 45%.
RIL's business strengths underpinned by world scale capacities and favourable market position in all its businesses, are further supported by the captive power plants at its various manufacturing locations and superior port and product handling terminal at its Jamnagar complex. The captive power plant and port terminal at Jamnagar are owned and operated by two group entities, Reliance Utilities and Power Limited (RUPL) and Reliance Ports and Terminals Limited (RPTL) respectively. Further, RIL would benefit from its small but growing operations in upstream oil and gas exploration and production.
In the refining business, RPL has a high 25% share of the Indian refining capacity through its 27 million MT per annum grass-root refinery at Jamnagar, Gujarat. Since its commissioning in April 1999, the refinery has achieved a high capacity utilisation ranging between 90%-105%. Although, the profitability of refining operations would remain vulnerable to the volatility in the gross refining margins (GRMs), the company's superior configuration (reflected by a Nelson complexity index of 9.9) coupled with continued import-tariff protection and availability of various fiscal incentives are expected to act as reasonable risk mitigants.
The Indian petroleum marketing industry is proposed to be deregulated with the dismantling of the Administered Pricing Mechanism (APM) from April 1, 2002. At present, the form and shape of the deregulated environment and the role of proposed regulatory body are being evolved. However, as a part of this process, RPL has recently been granted rights to market its petroleum products. This development is expected to provide an opportunity to RPL to directly market all its petroleum products in the country (which till now is partly restricted to 4 public sector oil companies). The relatively more stable marketing margins would enable the company to partly hedge its volatile GRMs. However, CRISIL estimates that creation of a comprehensive marketing infrastructure could take upto 12-24 months. Meanwhile, RPL would remain dependent on public sector oil companies for domestic offtake of its controlled products (MS, HSD, SKO, and LPG). Although at present, there is some uncertainty about the interpretation of quantum of 'controlled-products' under the company's agreement with Indian Oil Corporation, CRISIL expects the offtake of RPL's products to continue considering its strategic location in serving the deficit northern market and its demonstrated ability to export the surplus. The future foray into marketing of petroleum products and potential benefits thereof has been positively factored in the company's ratings.
In the petrochemicals business, RIL has a leadership position in the domestic industry with market shares ranging from around 50%-80% in the various business segments of polymers, polyesters, and fibre intermediates. The company is also among the top 5-10 global producers for products like polyethylene, polypropylene, polyester staple fibre, polyester fibre yarn, purified terephthalic acid, and paraxylene. These strengths coupled with a significant diversity in its product slate provide the company with adequate cushion against the inherent cyclical feature of the petrochemicals industry. Further, the company's competitiveness to export its products would enable it offset the impact of the domestic over-capacity situation prevailing in some segments such as fibre intermediates and polymers on its operating rates. The merger with RPL would also insulate the company against the price risk of volatility in the naphtha prices, the feedstock for its cracker. The future growth and profitability of the petrochemicals business would continue to be governed by movement in the international prices of various end products, import duty structure, and the exchange rate.
The financial profile of RIL following the merger (based on CRISIL estimates) is expected to be characterised by large networth (of around Rs. 200 billion as at March 31, 2002), high annual cash accruals of about Rs. 60-65 billion, and favourable cash debt-protection ratios (Net Cash Accruals/ Total Debt in excess of 25% and Cash Debt Service Coverage ratio of greater than 2 times). However, capital structure (expected Total Debt/ Tangible Networth of less than 1.0 time as at March 31, 2002) and interest coverage ratios (estimated PBDIT/ Interest and Finance Charges of around 4.5-5.0 times for 2001-02) would be currently moderate, although these are expected to improve to comfortable levels over the next 2-3 years. The company also derives considerable financial flexibility from long repayment tenure of its existing borrowings and demonstrated ability to borrow extremely long-term funds.
RIL's future growth plans in its core operations envisage entry into marketing of petroleum products and further consolidation of its position in petrochemicals business. The group, over the medium term, proposes to develop its retail outlets, pipelines, and terminals to market the controlled petroleum products. The group is also exploring possibility of acquisition of one of the 2 public sector oil-marketing companies, which the government has decided to dis-invest. This strategy, if successful, would provide RIL with a readily existing marketing network and would, thus, reduce the investment requirements in creation of its own infrastructure. In the petrochemicals business, RIL has plans to increase its polyester capacity (either through de-bottlenecking or through acquisitions) and proposes to participate in the dis-investment process for Indian Petrochemicals Corporation Ltd. The investment outlay for these growth plans would be largely funded through the company's cash accruals and is not expected to significantly impact the company's financial risk profile.
In addition to the above-mentioned growth plans in the existing business segments, the Reliance group is investing into the telecommunications services business through two companies viz. Reliance Telecom Limited [RTL] and Reliance Infocom Limited [RINFO]. The investments in this business are expected to be large and spread out over the next 2-3 year period. RIL, being a 45% shareholder in RINFO, has already invested an amount of Rs. 16 billion as debt (as at March 31, 2001) and has provided guarantees. The telecom business is, however, exposed to various risks relating to evolving nature of demand and regulatory framework, pricing, increasing competition, and technological obsolescence.
RIL has significant business linkages with RUPL and RPTL (which CRISIL considers as being strategic in nature in view of their strong integration with RIL's Jamnagar operations) and financial linkage with Reliance Capital Limited (RCL). Considering these linkages, CRISIL has analysed the consolidated debt profile and cash flow protection measures of the Reliance group entities (which include the merged entity, RUPL, RPTL, RCL, and RTL) and believes that these financial indicators are expected to remain comfortable.
March 3, 2002 keralamonitor.com
Reliance Petroleum Limited
Rs. 10.0 billion Non-Convertible Debenture issue AA+
(Placed on RatingWatch with Positive Implications)
Rs. 50.0 billion Non-Convertible Debenture issues AA+
(Placed on RatingWatch with Positive Implications)The 'AA+' ratings assigned to the various debt instruments of Reliance Petroleum Limited (RPL) have been placed on RatingWatch with positive implications, following today's announcement about its merger with its group company - Reliance Industries Limited (RIL). Subsequent to the completion of merger formalities, the ratings assigned to the various debt instruments would assume the rating of the merged entity.
RPL operates an oil refinery at Jamnagar with an installed capacity of 27 million MT per annum. RIL, which owns 64% of the equity capital of RPL, is primarily engaged in the business of petrochemicals (polymers, fibre-intermediates, polyesters, and other chemicals), oil and gas production and exploration, and textiles. The company's plants are located at Patalganga (Maharashtra) and Naroda, Hazira, and Jamnagar (all in Gujarat).