Reliance Industries Ltd.

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.