CARE’s downgrade of Reliance Capital debt is a fresh setback to India’s shadow banks
CARE’s downgrade of Reliance Capital debt is a fresh setback to India’s shadow banks

CARE downgrades Reliance Capital’s 17,000 crore debt to default grade

  • CARE Ratings has downgraded Reliance Capital’s 17,000 crore debt to default grade ‘D’ from stable ‘BB’ earlier
  • Reliance Capital said the delay was caused due to 'a technical glitch in bank servers, and the payment went through on the very next bank working day i.e. 11 Sept 2019

New Delhi: CARE Ratings has downgraded Reliance Capital’s 17,000 crore debt to default grade ‘D’ from stable ‘BB’ earlier. The agency attributed its action to the ADAG company delaying by a day its payment on several non-convertible debentures it had issued. “This constitutes an event of default as per CARE’s default recognition policy," the ratings agency said in a release.

In a strongly-worded notice to the BSE, Reliance Capital blamed CARE for its action and said the delay was caused due to “a technical glitch in bank servers on that date, and the payment went through on the very next bank working day i.e. September 11, 2019."

Reliance Capital said this would “precipitate a chain sequence of events that will gravely harm the interests of millions of retail and institutional investors having direct and indirect exposure to securities of the company."

Of the 17,000 debt at risk, 15,000 is long-term debt, 1,500 crore subordinated debt and the remaining market-linked debenture.

“The liquidity profile of the group continues to be under stress on account of delay in raising funds from the asset monetization plan and impending debt repayments," CARE said in the release.

This is not the first time a risk of default has emerged at an ADAG company. Reliance Communications, another ADAG unit, is now an NPA, now lying at the mercy of the National Company Law Tribunal.

On a day when the benchmark indices notched lifetime records, Reliance Capital share fell 2.8% on the NSE to close at 31.30. The promoter group owns 41.71% of the company.

CARE’s downgrade of Reliance Capital debt is a fresh setback to India’s shadow banks, still reeling under last September’s collapse of IL&FS. The crisis has also exposed several mutual fund houses for having put investors' money in risky debt instruments of companies part of groups like ADAG, Essel and Dewan Housing.

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.

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