Close on the heels of banks’ plan to form a Joint Lenders’ Forum (JLF) to salvage their loans, rating agency Fitch has downgraded Reliance Communications’ debt, saying some kind of default is a “real possibility”. The cash crunch may hamper the plan to demerge its wireless business into a 50:50 joint venture and sell 51 per cent of its tower business, Reliance Infratel Ltd (Infratel), it said.
With RCom’s net debt at over Rs 44,000 crore in March 2017, banks are hoping to come out with some measures to prevent this account from becoming a non-performing asset, said a banking source. The RCom debt crisis has come at a time when the RBI is in discussions with banks about resolution of top 50 NPAs in the system. “Banks had informed the RBI about the problems in the telecom sector two months ago,” said an official.
“RCom’s rating downgrade reflects Fitch’s belief that some kind of default is a real possibility,” a Fitch statement said.
“We believe that weakening cash generation from its core wireless business may hamper the plan to demerge its wireless business into a 50:50 joint venture and sell 51 per cent of its tower business Reliance Infratel. Even if these transactions happen and debt is paid down, we believe the residual business is likely to be saddled with too much debt,” Fitch added.
Fitch flagged poor liquidity, excessive refinancing risk, “compromised” business model and delays in deal execution as key reasons for the downgrade. “The rating action reflects Fitch’s assessment that short-term liquidity has deteriorated to a position where credit risk is very high,” Fitch said. During FY17, Rcom’s revenue and EBITDA (earning before interest, tax, depreciation and amortisation) declined by 10 per cent and 30 per cent respectively.
Fitch Ratings has downgraded Rcom Long-Term Foreign- and Local- Currency Issuer Default Ratings (IDRs) to ‘CCC’ from ‘B+’.
Meanwhile, RCom had assured investors and lenders that it would repay Rs 25,000 crore before September 30 this year. “Post signing of binding documents for the Aircel and Brookfield transactions, RCom has formally advised all its lenders that it will be making repayment of Rs 25,000 crore from the proceeds of these two transactions, on or before September 30, 2017. The said amount will cover not only all scheduled repayments, but also include substantial pre-payments to all lenders on a pro-rata basis,” an RCom spokesperson had said on Tuesday.