Reliance Communications downgraded by Moody’s, Fitch on debt concerns
Mumbai: Global agencies Moody’s Investors Service and Fitch Ratings on Tuesday downgraded the long-term debt rating of Reliance Communications Ltd (RCom) and its $300 million worth of senior bonds.
The downgrades by the rating agencies follow the announcement made by the company on 2 June that it has got a seven-month moratorium from lenders to service its debt. Reliance Group chairman Anil Ambani said bankers have taken note of the efforts taken by the firm—sale of tower business and merger of wireless operations—to repay loans.
“A missed scheduled payment of either interest or principal is considered a default under Moody’s definitions. The proposed debt resolution plan evidences the company’s likely inability to service its coming debt service obligations, as scheduled under its loan agreements,” said Di Chiara, Moody’s lead analyst for Reliance Communications.
According to Fitch, such a standstill on debt repayment is seen as “restricted default” under its rating definitions.
RCom plans to sell its tower business to Brookfield Asset Management Inc. for Rs11,000 crore. It plans to spin off its wireless unit and merge it with Aircel Ltd, which will result in Rs14,000 crore getting transferred to the merged entity.
This will remove Rs25,000 crore of debt from the books of RCom, which has total debt of Rs45,000 crore. The cut of 60% “will be the largest ever debt reduction by one company in the history of India”, according to Ambani.
According to Moody’s, while the company has got a moratorium on repaying loans from local as well as foreign lenders, it has not got any relief on outstanding senior secured bonds which will mature in November 2020. The interest payment worth $9.75 million on these notes is due on 6 November 2017.
Like other incumbents in the telecom industry, Reliance Communications has been hurt by the intense price competition unleashed by Reliance Jio Infocomm Ltd, which offered free calls and data as part of its September launch. The company reported its first fiscal year loss last week.
Reliance Group companies have sued HT Media Ltd, Mint’s publisher, and nine others in the Bombay high court over a 2 October 2014 front-page story that they have disputed. HT Media is contesting the case.