Global rating agency Standard and Poor's on Monday cautioned that the credit quality of Mukesh Ambani controlled Reliance group's flagship company RIL [Get Quote] might "weaken" if significant cash outflows were part of the settlement between him and younger brother Anil.

The Reliance 'ownership issue'

Though financial details are still "unclear", S&P said, "specifically, significant cash outflows, possibly resulting from share repurchases, division and distribution of liabilities and/or the contingent obligations on RIL, could materially affect the company's financial profile, which might weaken its credit quality."

The details and modalities of demerger are yet to be worked out even as Anil Ambani, who got Reliance Energy [Get Quote], Reliance Capital [Get Quote] and Reliance Infocomm companies as part of deal, yesterday parried queries as to what cash compensation he got from the elder brother in the settlement announced on Saturday.

However, S&P noted that the de-merger and eventual exit of RIL from the group's capital-intensive telecommunications and power business should not have a negative impact on its business risk profile...and may even have a positive impact.

S&P said RIL's financial details holds key for review of impact of settlement on its rating, adding that the RIL board was now working on reorganising the group's businesses.

S&P said the ratings on RIL and their stable outlook remain supported by the company's adequate financial profile, a dominant presence in its core oil refining and petrochemical businesses and the current upswing in these businesses.

RIL reported year-on-year 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, reflecting its "superior" business position in refining and petrochemicals businesses, the rating agency observed.

Its debt servicing ability was adequate, while its debt to capitalisation was below 40 per cent for fiscal 2005, S&P had noted in an earlier rating on June 10.

"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," the rating agency said.