S&P Global Affirms BBB+ Rating of RIL after Reliance Jio, Facebook Deal

Reliance Industries (RIL) has received a BBB+ rating from Standard and Poor's (S&P) Global, a popular rating agency, post the Facebook and Reliance Jio deal. A BBB+ rating means that an obligor has adequate capacity to meet its financial commitments. S&P Global has affirmed its 'BBB+' rating with a stable outlook on RIL, saying the company's leverage is poised to improve and stabilise over the next 12-24 months owing to disciplined spending, asset monetisation, and resilient earnings.

Reliance Industries announced last week that Jio Platforms and Facebook had signed a binding agreement for an investment of Rs 43,574 crore by Facebook into Jio Platforms. The investment by Facebook values Jio Platforms at Rs 4.62 lakh crore pre-money enterprise value. Facebook’s investment translates into a 9.99% equity stake in Jio Platforms. "We expect RIL to use the proceeds of Rs 43,574 crore to reduce its net debt," said S&P.

As part of the deal, Reliance Retail Limited and WhatsApp have also entered into a commercial partnership agreement. JioMart using WhatsApp aims to ensure that consumers are able to access the nearest kiranas who can provide products and services to their homes. “We expect the operating performance of RIL to remain resilient over the next two years, driven by the company's prominent domestic market position in the digital and retail segments," S&P Global said on the development.

Furthermore, RIL in August 2019 received a non-binding letter of intent from Saudi Aramco (Aramco) for acquiring a 20 percent stake in RIL's oil-to-chemicals business. A 20 percent stake translates to an Enterprise Value of 75 billion dollars for the Oil to Chemicals (O2C) division. This deal also is one of the largest foreign investments ever made in India.

The rating agency said the finalization of the Aramco deal would be credit positive for RIL, provided the company largely uses the proceeds to lower its debt. While S&P has stated that setbacks due to the lockdowns and the COVID-19 outbreak may constrain RIL's credit profile due to downside pressure on India's domestic market, the rating agency assumes that the company will use the 9.99 percent stake sale in Jio Platforms for deleveraging.

(With inputs from PTI)