Moody’s on Tuesday downgraded Reliance Communication’s (RCom) family rating and senior secured bond rating to Ca from Caa1 and assigned a negative outlook. The rating agency said the downgrade is due to the company’s proposed debt restructuring plan — including a standstill of RCom’s debt servicing obligations for 210 days — which is currently being considered by the company’s bank lenders. Meanwhile, RCom’s market cap on the BSE has fallen 36% in the past one month and stood at `5,003 crore at Tuesday’s closing. “A missed scheduled payment of either interest or principal is considered as a default under Moody’s definitions. The proposed debt resolution plan evidences the company’s likely inability to service its upcoming debt service obligations, as scheduled under its loan agreements,” said Di Chiara, Moody’s lead analyst for RCOM. Chiara added that in addition, with the formation of the joint lenders’ forum (JLF), the situation would suggest that the company has failed to make some interest payments when due, although RCOM’s management has yet to confirm the development. “In addition, RCOM’s management has stated that the standstill on debt service applies to all onshore and offshore bank facilities but not to the outstanding $300 million senior secured note due 6 November 2020. These notes are current with respect to interest payments and the next interest payment date is in 6 November 2017 for $9.75 million,” it said.
The 210-day moratorium on debt servicing, Moody’s said, allows RCom to focus on closing two strategic transactions – the sale of its telecommunications tower assets and the de-merger of its core wireless operations which it will merge with Aircel (unrated) in a new joint venture. “Without the successful and timely execution of these two strategic transactions, there is no scope for RCOM to delever,” Moody’s said in a statement. A consortium of lenders to the loss-making Rcom has given the beleaguered telco seven months time to pare debt and service loans regularly, Anil Ambani, chairman RCom, had told a media conference last week. The company whose net debt is a whopping `45,000 crore, reported a net loss of `948 crore in Q4FY17. The debt -equity ratio stood at 1.61 times on March 31 versus 1.39 a year ago. The interest coverage ratio fell to 1.84 times from 3.3 times a year ago.
The breather is part of a strategic debt restructuring (SDR) scheme, by which lenders can convert loans into equity, after seven months. Ambani said the company hoped to pare loans by `25,000 crore by end–September but had nevertheless sought more time to do so. The company expects the sale of its towers business to fetch Rs 11,000 crore. Another Rs 14,000 crore is to be transferred to the proposed joint venture between RCom and Aircel. Banks are yet to approve the transfer of the Rs 14,000 crore of loans from the books of RCom to the planned joint venture.
Earlier last month, CARE Ratings downgraded ratings assigned to the bank loans, NCD issue and short term debt issue of the company to CARE D owing to a delay in the servicing debt obligations. Reliance Communications has delayed the interest as well as principal repayments due on its NCDs and the NCD installment of `375 crore due on February, 7, 2017 was paid on April, 10 2017, CARE Ratings had said in a release. Bloomberg had reported, the telecom company had classified `22,550 crore ($3.5 billion) of borrowings as non-current liabilities as at March, 31 pending formal confirmation by lenders for waivers on certain loan covenants, according to notes from its earnings results published on May 27.