Moody's Investors Service yesterday said on the announcement made by Reliance Industries Ltd that it is in initial talks to acquire Dutch petrochemicals giant LyondellBasell could result in a downgrade of RIL's Baa2 credit rating, depending on the size of the deal and how it is funded.
It said if the combined entity's retained cash flow-to-debt dropped below 20% and Ebit-to-interest coverage fell below 4x on a consistent basis, a downgrade in the rating was possible. Moody's last rating action on RIL was taken on March 2, when the agency retained the company's Baa2 status with a stable outlook, following the announcement of RIL's merger with subsidiary Reliance Petroleum Ltd.
As of September, RIL had around $4.2 billion in cash and liquid investments and roughly another $8 billion in Treasury shares. If liquidated, these could provide the company with significant resources to fund a potential deal without materially impacting its financial metrics.
Moody's is not taking any rating action at this stage since the offer is preliminary and non-binding and it is subject to due diligence. Moody's would furnish a more detailed response when transaction materialises.
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