Reliance stake sale to Saudi Aramco and BP will reduce leverage, a credit positive: Moody's

Stake sales are in line with the company's plan to reduce net debt to zero by March 2021

Reliance, Saudi Aramco, BP, Deal, M&A, Acquisition, Moody's, Credit

Moody's Investors Service said in a new report that the proposed sale by Reliance Industries Limited (RIL, Baa2 stable) of a 20% stake in its oil-to-chemicals (O2C) business to Saudi Arabian Oil Company (ARAMCO, A1 stable) will reduce RIL's debt leverage, a credit positive.

In addition, RIL has announced its will sell a 49% stake in its fuel marketing business in India to BP p.l.c. (A1 stable) for $1 billion.

"The stake sales are in line with RIL's commitment to reduce its net debt to zero by March 2021, and reflect its commitment to maintaining a strong financial profile despite significant capital spending over the last five years," says Vikas Halan, a Moody's senior vice president.

Moody's estimates that the two transactions together will reduce RIL's net debt by $16bn, and lower its leverage – as measured by net debt/EBITDA – by 1.2x from 3.2x for the fiscal year ending March 2019.

The two transactions follow the sale of its telecommunications tower business in July 2019 to Brookfield Asset Management Inc. (Baa2 review for upgrade) for $3.5bn.

The company has also transferred its optical fiber assets to an infrastructure investment trust and expects to complete the sale of those assets to a strategic investor by March 2020.

Further, the company announced its intention to sell stakes in its digital services and retail businesses to strategic investors and also monetise some of its real estate and financial assets.


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