Traffic passes beneath an under construction Lucknow Metro overhead rail track (Photographer: Prashanth Vishwanathan/Bloomberg)

Crisil Downgrades Reliance Infrastructure’s Debt As ‘Default Is Imminent’

Crisil Ltd. has downgraded the debt instruments of Reliance Infrastructure Ltd. to its lowest level after it missed interest payments. The move was prompted by its exposure to other companies in the Reliance Anil Dhirubhai Ambani group.

The ratings agency downgraded non-convertible debentures worth Rs 585 crore and Rs 125-crore bonds of Reliance Infra to 'D' from 'BBB+', according to a media statement. It has also withdrawn its rating on the Rs 124-crore NCDs of the company on their maturity.

The instruments with a Crisil D rating are in default or are expected to be in default soon.

“The rating downgrade reflects non-payment on due date of interest and principal obligations on CRISIL-rated NCDs that were due on July 27, 2018,” Crisil said in the statement. “The company has also intimated that it expects to make these payments in early August from the proceeds of the proposed sale of its Mumbai power generation, transmission and distribution business to Adani Transmission Ltd.”

After the proposed sale, Reliance Infrastructure's business profile will change as the Mumbai GTD business contributed about 80 percent to its operating profit, the statement said. However, the deal is yet to get lenders' approvals.

While non-payment of interest is the key reason for the downgrade, Crisil said that Reliance Infrastructure's high exposure to group companies through inter-corporate deposits and preference shares and its high leverage pose risks.

Crisil believes that large investments in group companies has affected Reliance Infrastructure’s liquidity and weakened its financial risk profile.
Crisil Rating Rationale

It said that as of March-end, the debt-to-Ebitda ratio for Reliance Infrastructure remained high at 5.3, while the adjusted interest coverage was around 1.85. “Crisil believes the company will reduce its debt over the medium term. However, debt protection metrics may remain constrained till actual debt reduction takes place. Hence, timely completion of its deleveraging will remain a key monitorable.”

All’s not lost though. The company has reinstated its focus on external orders in the engineering, procurement and construction business after a decline in orders from group companies through fiscal 2017. It had ramped up its order book to Rs 26,660 crore as of June-end, from Rs 5,960 crore in March 2017. “A sustained build up of the order pipeline will strengthen the revenue visibility for this business segment, and will remain a key monitorable over the medium term,” Crisil said.

Even its power distribution business has seen stable cash flows. But they’re selling it. Hence, Crisil said that the future business profile “will remain contingent upon its strategies in residual businesses of construction and defence”.

Shares of Reliance Infrastructure had closed 4.12 percent lower today after the downgrade, compared to a 0.2 percent decline in the benchmark BSE Sensex index.