>Reliance Infrastructure (UBS)

● CRISIL places Reliance Infrastructure ratings on Negative Watch The credit rating agency, CRISIL, has placed its ‘AAA’ ratings on the Rs10bn and Rs3bn bond of RELI on ‘Rating watch with negative implications’. This reflects the fact that RELI is yet to finalise details of de-merger, proposal for which was announced in Feb’09. This follows similar downgrades by Fitch in 2008 - Fitch downgraded RELI’s rating, to AA+ in July 2008 and to AA in Dec 2008 which were more related to business diversification, and not corporate reorganisation.

● Cost of funds could increase but don’t see any more downgrade risks: Cost of funds could increase 50-100bps if downgraded but given the disclosed net cash levels (excluding Reliance Power), we do not expect further credit downgrades this year. We also believe that the downgrade by itself was to have been anticipated given diversification from being a pure utility business.

● Financial closure for Sasan has not been announced yet: Reliance Power’s 4,000MW UMPP in Sasan requires debt of ~Rs145bn, of which as per our channel checks, Rs120bn has been approved. We do not rule out the possibility of any rating downgrade holding up the financial closure in addition to well-known issues related to land acquisition. Nevertheless, once the business reorganisation is approved, we expect the holding company discounts could widen.

To see full report: RELIANCE INFRASTRUCTURE