In growing troubles for struggling Reliance Communications, Fitch Ratings has downgraded the Anil Ambani-controlled company to CCC, further down in the junk category, implying that the some kind of default on the company’s debt is now a “real possibility”. Fitch Ratings cut comes close on the heels of Moody’s too downgrading Reliance Communications earlier this week to Caa1 from B2.
“RCom may struggle to refinance its maturing short-term debt given declining EBITDA and delays in executing asset sales,” Fitch said on Thursday, adding that the company’s business model is compromised due to fierce price competition in Indian mobile market.
RCom, India’s most-leveraged Indian telecom service provider, has reportedly delayed repayment of loans to more than 10 banks and plans to repay Rs 25,000 crore worth of loans to its lenders with proceeds from its deals with Aircel and Canada’s Brookfield Infrastructure.
However, Fitch has raised concerns over the deals, saying that RCom’s weakening cash generation from core wireless business may hamper plan to demerge wireless business into 50:50 JV and sell 51% of tower business Reliance Infratel. Further, it said that even if the transactions happen and debt is paid down, the residual business is likely to be saddled with too much of debt.
RCom’s low-cost offerings have dragged its performance down while the Indian telecom sector has grown as a whole over the years. RCom has failed to garner high-revenue subscribers for its services and as a result has not been able to grow in sync with the rest of the telecom industry.
“RCom’s capital structure is unsustainable as FY17 FFO-adjusted net leverage was over 9.0x” Fitch said today, adding that it does not expect that operating cash flows will improve. The agency said that the company’s market position is weak and it has limited financial flexibility to invest to strengthen its position or step-up marketing costs.
Spelling out further troubles for the company, Fitch also said it believes that RCom’s FY18 EBITDA will be sufficient to cover its annual interest cost and maintenance capex requirements.