Ambani war: Cash settlement will hit RIL

Even as news of a possible settlement between the Ambani brothers are doing the rounds, global rating agency Standard and Poor's on Friday cautioned that any substantial cash payment made out of Reliance could impact the group's flagship company adversely.

"RIL's business and financial profiles could weaken materially if the settlement involves substantial cash payments by RIL, resulting in increased financial leverage or a transfer of any of its core oil refining and petrochemical businesses," the agency said from Singapore while rating Reliance.

"A potential settlement of the differences between the chairman and vice-chairman of RIL (BB+/stable), as reported by the media, is by itself not expected to have an immediate impact on the rating," it said.

The Reliance Ownership Issue

However, it said that if the settlement entails a carved out and transfer of the group's telecommunication business along with power and energy business to the vice chairman (Anil) as reported by the media, then it is not expected to harm RIL and even have a positive bearing on the flagship company.

It said the outlook on the rating was stable, signifying that the rating on RIL was unlikely to change, with the exception of "material adverse developments" in the settlement.

Standard and Poor's expects that final settlement would balance the interests of all the involved parties -- lenders and shareholders, given RIL's prominent position in

India's private corporate sector and its links with domestic and international banking system and capital markets.

RIL reported 30 per cent jump in revenues at $16.7 billion and 47 per cent rise in net profit at $1.7 billion in fiscal 2005 as compared to previous year's figures, reflecting its "superior" position in the refining and petrochemicals businesses.

Its debt servicing ability was adequate, while its debt to capitalisation was below 40 per cent for fiscal 2005, the rating agency noted.

"RIL's liquidity has improved from the previous year, with cash and liquid investments for fiscal 2005 adequately covering the debt falling due over the next one year," it said.

Going forward, RIL was expected to maintain adequate liquidity, although a part of these liquid resources is likely to be deployed for the company's planned capital expenditures, S&P said.