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Ambani settlement won't impact RIL rating, but cash payment to Anil will, says S&P
BY OUR CORRESPONDENT
11 June, 2005: Standard & Poor's Rating Services said on Friday that a potential settlement of the differences between the chairman and vice-chairman of Reliance Industries Ltd, as reported by the media, is by itself not expected to have an immediate impact on the rating. The reports have suggested that Mukesh Ambani, chairman of RIL, and Anil Ambani, vice-chairman of RIL, are likely to reach a settlement to resolve their differences
If the settlement entails a carve-out and transfer of the group's telecommunications business along with the power and energy business to the vice-chairman as reported by the media, then this is not expected to harm RIL's business and financial profiles, and may even have a positive bearing on RIL. However, RIL's business and financial profiles could weaken materially if the settlement involves substantial cash payments by RIL, resulting in increased financial leverage, or a transfer of any of its core oil refining and petrochemicals businesses.
Reliance posted revenues of $16.7 billion and net profit of US$1.7 billion in fiscal 2005, up 30% and 47% respectively over the previous year, reflecting
its superior business position in the refining and petrochemical segments. Its debt-servicing ability is adequate—EBITDA interest coverage is estimated at
6x, while its debt to capitalization is below 40% for fiscal 2005. Standard & Poor's is of the view that RIL's liquidity has improved from the previous
year, with cash and liquid investments for fiscal 2005 adequately covering the debt falling due over the next one year. Going forward, RIL is expected to
maintain adequate liquidity, although a part of these liquid resources is likely to be deployed for the company's planned capital expenditures.
The outlook on the rating is stable, signifying that the rating on RIL is unlikely to change, with the exception of material adverse developments in the
settlement between the chairman and vice-chairman. Standard & Poor's also expects that the final settlement would balance the interests of all involved parties, including the lenders and the shareholders, given RIL's prominent position in India's private corporate sector and its linkages with the domestic and international banking system and capital markets.
BY OUR CORRESPONDENT
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