The ongoing legal tussle between Reliance Industries Ltd (RIL) and Reliance Natural Resources Ltd (RNRL) and Standard and Poor’s (S&P) negative outlook on RIL’s proposed bid to acquire Netherlands-based LyondellBasell Industries seems to have no impact on its share price. In fact, the stock is shooting up since last week.
LyondellBasell is a leading global petrochemical player which has filed to reorganise its operations under Chapter 11 of the US Bankruptcy Code.
S&P assigned a ‘BBB’ rating with a negative outlook to RIL’s consolidated financial metrics and said that it could weaken over the next 12 months. Although S&P acknowledges that the transaction could bring some strategic benefits, it believes the synergies would be limited.
"The negative rating outlook for RIL factors in the relatively weak global economic environment, which has undermined the profitability of commodity-related companies like Reliance Industries and LyondellBasell," Suzanne Smith, S&P's credit analyst and managing director, corporate & government ratings, South and Southeast Asia, said.
The outlook also takes into consideration the uncertainty over the size of the cash flow contribution to the company from gas production due to legal disputes with RNRL and state-run NTPC Ltd.
At the same time, S&P’s India unit, CRISIL, has reaffirmed its ratings on RIL’s debt instruments and bank facilities with stable outlook. CRISIL said its ratings on the debt instruments and bank facilities of RIL continue to reflect RIL’s leadership in the petrochemicals industry in India, strong competitive position in the global oil refining business, and its exceptional financial flexibility.
RIL’s stock price has increased 3% to Rs2,177 as on 24th November from Rs2,120 on 13th November, while the BSE Sensex rose 282 points or 2% to 1,7131 during the same period.
Currently, the stock is trading at an ex-bonus price of Rs1,060. Earlier, RIL had announced a bonus share issue of 1:1.
“Ratings have not been considered seriously by Indian stockbrokers till now. The rating factors may be correct theoretically but not practically. I don’t think ratings adversely affect valuations or trading in any particular stock, but yes, it can be considered as an advisory rather than a warning,” said Chandrashekhar Layane, senior vice president, Fairwealth Securities. – Ravi Samalad [email protected]