Mumbai: Rating agency Moody’s on Friday placed GCX Limited’s B3 corporate family rating (CFR) and senior secured ratings on review for downgrade. GCX is a wholly-owned subsidiary of Reliance Communications Ltd. (RCom) through an intermediary holding company, Global Cloud Xchange Ltd (GCXL).

According to Annalisa DiChiara, vice-president and senior credit officer, Moody’s, although the management has announced it is evaluating several refinancing options on its recent earnings call, a binding and definitive agreement is yet to appear, which increasingly weighs on the ratings.

“Moreover, some of the options require RCom’s exit from the strategic debt restructuring (SDR) process, a situation which lends to ongoing uncertainty around the completion of any agreement and GCX’s ability to access the market under current circumstances," added DiChiara.

SDR was a restructuring scheme introduced by the Reserve Bank of India (RBI) in June 2015 through which lenders could convert debt into equity. However, in a more recent directive on 12 February, the central bank has repealed all past restructuring schemes.

The rating agency said that GCX’s $350 million senior secured bonds mature 1 August 2019, however, the company’s access to the public markets has been shut since RCom entered the SDR process in June 2017.

“RCom has been pursuing the completion of an asset monetization program since December 2017 to exit the SDR process. RCom expects to exit the SDR following the completion of its spectrum assets sales to Reliance Jio Infocomm Ltd by 30 September," it said, adding that RCom is still awaiting a Supreme Court ruling related to the matter, and as such Moody’s cannot rule out further delays.

GCX, Moody’s said, communicated in its Q1 earnings call on 6 September that it is working on multiple refinancing options for the 2019 notes, including the sale of GCX to a new partner; a privately negotiated loan facility; and a tender and new issue offer.

“We anticipate management will execute a definitive refinancing plan over the next 60 days without loss to bondholders, failing which the ratings will be downgraded," says DiChiara.

As of the end of June 2018, GCX had a cash balance of $38 million, Moody’s said. The company remains current on its interest payments and Moody’s said it expects the company will have more than sufficient cash to satisfy its next interest payment of $12.25 million in February 2019 assuming that the 2019 notes have not been refinanced by then.

“To that end, GCX had guided towards cash earnings before interest, tax, depreciation and amortization (EBITDA) of around $70-80 million by year-end March 2019 -- with cash levels trending towards $70 million over the same period -- on its Q1 earnings call on 6 September. The B3 ratings consider the company’s relatively stable operating performance," it said.

The review, Moody’s said, will focus on the company’s ability to complete the refinancing of its $350 million notes within the next two months. “The ratings could be downgraded if GCX is unable to demonstrate access to the capital markets to fund the $350 million notes refinancing without loss to bondholders," Moody’s said.

However, a successful refinancing within the next two months, it said, will stem downgrade ratings pressure. “The ratings are unlikely to be upgraded or their outlook return to stable prior to the completion of the refinancing of the 2019 notes," it added.

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