Rating agencies downgrade RCom again

Ca rating indicates that obligations in this category are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest.

By: ENS Economic Bureau | Mumbai | Published:June 7, 2017 1:42 am
reliance communications Reliance Communications Logo

Credit rating agencies Moody’s Investors Service and Fitch Ratings have further downgraded telecom operator Reliance Communication’s rating on various instruments. Tuesday’s downgrade came amid reports that market regulator Sebi had asked rating agencies about the delay in rating action in the case of the telecom company. “Moody’s Investors Service has downgraded RCom corporate family rating and senior secured bond rating to ‘Ca’ from ‘Caa1’. The outlook is negative,” Moody’s said in a statement. Credit rating indicates capability of a company to pay back debt. Moody’s rate firms in nine categories ranging from Aaa to C.

Ca rating indicates that obligations in this category are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest. Fitch Ratings has downgraded Rcom’s long-term foreign and local-currency issuer default ratings (IDR) to ‘RD’ from ‘CCC’. Fitch has also downgraded the rating on RCom’s $300 million 6.5 per cent senior secured notes due 2020 to ‘C/RR4’ from ‘CCC/RR4’. The downgrade follows RCom’s June 2, 2017 announcement that all of its bank lenders are prepared to waive debt service obligations until end-2017 to provide time for the company to lower its debt through two proposed transactions and present a plan demonstrating how the debt can be serviced over the long term.

“Under our rating definitions this situation constitutes a restricted default, as multiple waivers or forbearance periods have been extended in parallel following a non-payment event,” Fitch said. “The downgrade reflects RCom’s weak operating performance, high leverage and fragile liquidity position. The company’s reported EBITDA has fallen 29 per cent year-over-year, evidencing its weak market position and contracting subscriber base,” Moody’s vice president and senior credit officer, Annalisa DiChiara said.

Moody’s said the ratings are under review for further downgrade. The C category, below Ca, indicates that a firm has defaulted on paying back debt and there is little prospect for recovery of principal or interest. Moody’s about a week back had downgraded RCom rating to Caa1 from B2. “At the same time, RCom’s consolidated debt levels continued to rise through year-end. The company reported total debt of Rs 45,700 crore at March 31, 2017, resulting in reported debt to EBITDA ratio of 8.5x. Including its reported Rs 3,320 crore of deferred payment liabilities, leverage increases further to over 9x,” the statement said.

Moody’s said that RCom has around Rs 23,000 crore short-term debt and current long term debt maturities through March 31, 2018. Lenders of RCom last Friday decided to invoke Strategic Debt Restructuring (SDR) and give a deadline till December 2017 for debt reduction to the Anil Ambani controlled company. RCom chairman Anil Ambani had said the company plans to complete deals to sell part of its wireless and tower business by September 2017, three months before the December deadline set by its lenders, and reduce the debt.

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