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Reliance Rating Raised by S&P on $30 Billion Spending

May 29 (Bloomberg) -- Reliance Industries Ltd., operator of the world’s biggest oil refining complex, had its credit rating upgraded by Standard & Poor’s, which said the company’s $30 billion spending on new capacities will boost earnings.

The rating for Mumbai-based Reliance was raised one level to BBB+, the third-lowest investment grade, from BBB, held since November 2005, Standard & Poor’s said today in a statement. The outlook for the rating is negative, reflecting India’s, it said. S&P rates India BBB-, the lowest investment grade.

“Reliance’s decision to invest more than $30 billion in its existing core businesses over the next three years provides clarity regarding the company’s use of its significant cash balances,” S&P said in the e-mailed statement. “We upgraded Reliance because we believe the company’s strategy to grow organically will strengthen its competitive position and support its profitability.”

Reliance’s billionaire Chairman Mukesh Ambani expects to double the company’s operating profit in the next five years by increasing petrochemical-producing capacity, raising natural gas output at its biggest field and improving refining earnings. The rating upgrade may help reduce borrowing costs at Reliance, which raised an unprecedented $5.8 billion overseas last year.

The shares rose 0.5 percent to 847.90 rupees at the end of trading in Mumbai, beating the benchmark index’s 0.1 percent drop. The S&P upgrade came after the market closed.

Profit Growth

Reliance reported its highest profit growth in almost three years after earnings from turning crude into fuels increased in the quarter ended March 31. Reliance had cash and equivalents of 829.8 billion rupees ($14.8 billion), deposited in bank deposits, mutual funds and government securities as of March 31, the company said. That surpassed its 724.3 billion rupees of debt outstanding.

Reliance will spend 75 percent of its $30 billion expenditure in the next three years on its primary businesses of refining, petrochemical, and oil and gas exploration and production, S&P said.

The company will invest $11 billion for energy exploration, $8 billion to expand petrochemical output and a combined $8 billion in its refining, retail and communications businesses, Deutsche Bank AG said in a report in March. The firm will spend about 1 trillion rupees in five years, Ambani told shareholders in June.

Reliance runs two refineries at Jamnagar in the western state of Gujarat that can together process 1.24 million barrels of crude every day. The plants are capable of turning heavier grades of oil, which are typically cheaper, into high-value fuels.

It also owns 60 percent in India’s biggest gas field, called KG-D6, off the nation’s east coast. Production from the field, which started in April 2009, has declined for the last three years. The company and its partners BP Plc and Niko Resources Ltd. announced a “significant” gas discovery in the block on May 24 after drilling the first exploration well in the area in more than four years.

To contact the reporter on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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