Date:16/12/2004 URL: http://www.thehindubusinessline.com/2004/12/16/stories/2004121603500100.htm

Back Spat may hit Reliance's strategic direction: S&P

Our Bureau

Mumbai , Dec. 15

THE ongoing spat between Reliance Industries Chairman, Mr Mukesh Ambani, and Vice-Chairman, Mr Anil Ambani, could affect the group's strategic direction, according to international credit rating agency Standard & Poor's.

The differences could weaken businesses other than the group's core activities of oil refining and petrochemicals, the agency said.

In a credit analysis, S&P said the outlook on Reliance's local currency rating is stable.

The agency said a review of the rating would be called for if there is a substantial change in the group's structure or its business plans.

The rating agency in a statement today said, "The current differences between the Chairman and Vice-Chairman of Reliance have a greater potential to weaken the Reliance group's other businesses, rather than its core oil refining and petrochemicals businesses, particularly its day-to-day operations.

In addition, these differences could affect Reliance's strategic direction, and a substantial change in Reliance'sbusiness plans or the group structure will require a review of its rating".

The agency further pointed out that the company's liquidity is weak.

As on March 31, 2004, Reliance had a Rs 64-billion debt falling due in the next 12 months.

Against this, it had a cash and equivalent of Rs 2 billion and a bank line of Rs 40 billion from a consortium of Indian and foreign banks, S&P said.

In the event of a default by Reliance, recovery prospects on its debt are low in the near to medium-term.

This reflects the weakness in India's legal system on foreclosure law, which was recently strengthened but remains mired in legal controversies, the agency said.