S&P gives investment grade rating to RIL’s U.S. debt issue

International credit rating agency Standard & Poor’s has given a ‘BBB’ rating to Reliance Industries’ latest move to raise funds in the United States to finance its shale gas activities in the country.

Reliance plans to issue U.S. dollar denominated senior unsecured notes through its subsidiary Reliance Holding USA Inc, S&P said in a note.

A BBB rating comes just above ‘junk’ bond rating and is considered to be ‘investment grade’, though below other ratings such as AAA, AA, A etc..

Reliance Industries, as a company, already has a BBB rating with a ‘Positive’ outlook, indicating that the agency believes the company’s finances are likely to improve in the future.

It said its view of RIL’s long term health is based on various factors like “the company’s large scale, integrated and efficient oil refining and petrochemical operations, and good business diversity.”

The outlook also reflects the agency’s view that RIL’s partnership with BP will help preserve its competitive position in the exploration and production business, and support operating performance and investments, it added.

“Payments from BP PLC (A/Stable/A-1) for a stake in RIL’s gas blocks will offset RIL’s weaker operating performance than in fiscal 2011 and potential cash outflow due to a share buyback plan,” it said.

It said it could further raise RIL’s rating if it gets “clarity on RIL’s business strategy, especially its use of its significant cash balances” and the company “significantly reduces” its exposure to India and maintains its debt debt levels below 1.5 times its EBITDA. Debt levels have risen from 1.4 times last year, it said.

On the other hand, it said it could cut RIL’s rating if it makes a large investment in a regulated business in India, such as financial services, or in a non-core business where the company has no record.