Reliance Communications rejects new Moody’s, Fitch ratings downgrades
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Mumbai/Hong Kong: Reliance Communications Ltd (RCom) pushed back against Moody’s Investor Services and Fitch Ratings, disagreeing with the ratings agencies’ assessment that the mobile phone carrier could struggle to reduce its long-term debt even after completing key asset deals.
RCom said last week it had won a seven-month reprieve from lenders on its loan-servicing obligations as it pursues the sale of a stake in its tower company and the merger of its wireless unit with rival Aircel-asset deals that would allow it to cut its $7 billion debt pile by 60%.
Moody’s Investors Service and Fitch Ratings said on Tuesday the step constituted a default under their ratings definitions, while warning the company would still have about Rs20,000 crore ($3.1 billion) left in debt even if it pulled off the two deals.
The ratings agencies reinforced market doubts about RCom’s long-term debt, and its ability to pull off the two deals, sending shares down 4%.
Bonds due 2020 recouped some losses but were still down half a point to 70/73 cents on the dollar. They have lost about a third of their value since mid-May.
“We respectfully disagree with the recent rating actions by both these agencies, and believe that these rating actions do not reflect the servicing track record of the company,” RCom said in a statement.
“The rating agencies have not given due credit to the advanced stage of the corporate transactions.”
RCom added it had met its coupon payments on the 6.5% bonds maturing in November 2020, while noting it was “fully current in servicing.”
RCom chairman Anil Ambani has said the company may pursue options including sale of a stake in its undersea cable unit to further cut debt.
Costly airwave auctions had bruised Indian telecom sector, but it was a price war triggered by the arrival last year of Reliance Jio Infocomm Ltd, run by Anil’s elder brother and India’s richest man Mukesh Ambani, that brought the sector to its knees.
RCom is under pressure to show progress as it seeks to sell a 51% stake in its mobile towers unit to Canada’s Brookfield Infrastructure Group for Rs11,000 crore. It will own 50% of the mobile joint venture company to be called AirCom after merging its wireless business with rival Aircel.
The company has said it will complete those two deals by September 30 after getting necessary approvals.
Fitch cast doubt on whether RCom would be able to even accomplish those two deals, highlighting the “weakening cash generation” in the Indian wireless sector and warning about RCom’s cash flow.
Other market players were also sceptical.
“We have started sharpening our pencils on the situation. My gut feeling is those two are not done deals,” said a distressed-debt investor, who requested anonymity, citing the sensitivity of the matter.
Failure to clinch the deals could see lenders acquire control of RCom by converting part of their loans to equity, raising alarm among bondholders, amid persistent doubts about its long-term debt levels.
“We have been getting calls from Chinese banks who have exposure to Reliance Communications and want to get rid of it,” said a banker who offloaded debt exposure to the company in 2016 and took a ‘haircut’ of 10 cents on the dollar in the process.
It was not immediately known how much RCom owes the Chinese banks. In 2012, Chinese state banks agreed to lend $1.18 billion to the company. Reuters