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  1. Reliance Jio’s RCom buyout: Moody’s in no mood to change RIL’s ratings

Reliance Jio’s RCom buyout: Moody’s in no mood to change RIL’s ratings

Reliance Industries' credit rating will not be affected following the acquisition of mobile telephony assets of Reliance Communications.

By: | Published: December 29, 2017 7:17 PM
moody's, moody's investors, moody's ups india rating, moody's rating, moody's credit rating, moody's investor rating, tax benefit Reliance Industries’ credit rating will not be affected following the acquisition of mobile telephony assets of Reliance Communications. (Image: Reuters)

Reliance Industries’ credit rating will not be affected following the acquisition of mobile telephony assets of Reliance Communications which will happen at less than Rs 25,000 crore, says Moody’s. “RIL had cash and cash equivalents of Rs 77,000 crore, which can be used to fund the acquisition,” says Vikas Halan, a vice-president and senior credit officer at the global ratings agency said today.

Even assuming that RIL pays Rs 25,000 crore for the assets, Halan said “it accounts for only 0.4 per cent of RIL’s
pretax profit for the last one year, and 11.6 per cent of its consolidated borrowings as of September 2017.”
“Therefore, Moody’s Investors Service sees no impact on RIL’s ratings following the acquisition of RCom,” Moody’s
that has a ‘Baa2’ rating on RIL with stable outlook, said.

It can be noted that in November, Moody’s had withdrawn the ratings on RCom, citing a missed scheduled
payment related to the company’s dollar bondholders. The agency said it expects RIL to pay less than Rs
25,000 crore for the acquisition as it is acquiring only the towers, optic fibre cable network, spectrum and media
convergence nodes, and not the realty assets.

Even assuming that it pays Rs 25,000 crore, Halan said it accounts for only 0.4 per cent of RIL’s pretax profit for
the last one year, and 11.6 per cent of its consolidated borrowings as of September 2017. “Despite a possible increase in RIL’s consolidated leverage the acquisition can be accommodated within RIL’s
rating,” it added.

It can be noted that during a press conference to announce the company’s exit from the strategic debt
restructuring programme that entailed bankers taking over majority control of the company, RCom chairman Anil Ambani had said it expected the asset sales, excluding the its operational headquarters Dhirubhai Ambani Knowledge City in the nearby Navi Mumbai, to fetch Rs 25,000 crore.

It will reduce the cushion under RIL’s rating for further increase in its borrowings, especially if the company
does not reduce its planned capital expenditure for its telecom business, the agency warned. Yesterday, RIL surprised all by announcing acquisition of the RCom assets without specifying the consideration. If
all goes as planned, the deal will be consummated by March.

Acquisition will help RIL access the telecom infrastructure assets of RCom following the latter’s debt
restructuring and also ensures that RCom’s 4G spectrum does not fall into hands of RIL’s competitors, Moody’s said.

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