Reliance Communications Downgraded Again By Moody’s And Fitch
Moody’s downgrades corporate rating to ‘Ca’, just one notch above default.
Reliance Communications Ltd.'s attempt to allay concerns over its ability to repay loans seemed to have no bearing on ratings agencies as Moody's Investors Services and Fitch Ratings further downgraded to the telecom operator.
Moody's downgraded Reliance Communications' corporate family rating to 'Ca', which is just one notch above default, while maintaining a negative outlook, according to a media statement. Fitch Ratings followed it up by downgrading the company's long- and short term debt to 'restricted default' from a 'CCC' rating, it said in a separate statement.
The downgrades come just days after Chairman Anil Ambani held a media conference where he laid out the company's path to paring debt. Lenders to the telecom operator had on Friday last week invoked strategic debt restructuring, which would give Reliance Communications a seven-month standstill to service its debt obligations through two transactions.
Ambani was confident that the planned merger with Aircel Ltd., and the sale of its tower assets to Brookfield Asset Management, would be completed by September and bring down the company's debt by almost 60 percent. If the company failed to complete the transactions by December 31, then the lenders would exercise their right to convert debt to equity.
Moody's said even if the proposed transactions are completed successfully, Reliance Communications would have a debt of over $3 billion on its books.
Given the heavy debt load and the uncertainty regarding the cash flow-generating capabilities of the residual businesses post demerger and asset sales, Moody’s believes the capital structure of the remaining business will remain weak.Moody’s Investors Services Statement
It said the company's debt has grown to over 9 times its operating income. This, combined with uncertainty around the company's ability to generate cash flow, was the reason for a negative outlook.
Fitch too took note of the weak liquidity position saying that it would be insufficient to repay the short-term debt of Rs 10,900 crore, adding that it is unlikely that Reliance Communications will be able to meet its annual interest costs of around Rs 3,500 crore in financial year 2018.
Even if the tower business and wireless JV transactions occur and debt is paid down, we believe the residual business is likely to be saddled with excessive debt.Fitch Ratings Statement
Fitch also further downgraded Reliance Communications' $300 million 6.5 percent bond which is due in 2020 to C/RR4 from CCC/R4.
“The ratings are unlikely to be upgraded prior to the completion of Reliance Communications' corporate restructuring and debt restructuring, repayment of debt and accrued interest with proceeds the from asset sales, and the emergence of clarity on the capital structure for the remaining businesses,” Moody’s added.
Reliance Communications expects to meet all its debt repayment obligations, it said in a media statement following the recent downgrades. "The said amount will cover not only all scheduled repayments, but also include substantial pre-payments to all lenders on a pro-rata basis.", the statement added.
Shares of Reliance Communications Ltd. have tumbled over 57 percent in the last one month, while the country's benchmark Nifty50 index has gained 17.5 percent during the period.