Shares and bonds in embattled Indian mobile carrier Reliance Communications fell on Wednesday after Moody’s and Fitch further downgraded their ratings to default levels and warned about its ability to deal with long-term debt. Shares in RCom, as the company is known, fell as much as 4.5 percent in early trading, taking their losses in the past month to more than 37 percent. Bonds due 2020 were down 3 points to 67.5/71 cents on the dollar, losing about a third of their value since mid-May.
Billionaire Anil Ambani, who controls the company, said last week the carrier had won a seven-month reprieve from lenders in India on its loan-servicing obligations as it pursues the sale of a stake in its tower company and the merger of its wireless unit with rival Aircel.
Moody’s Investors Service and Fitch Ratings said on Tuesday that constituted a default under their ratings definitions, while warning the company would still have about 200 billion rupees ($3.10 billion) left in debt that may prove hard to cut down. Failure to clinch the deals could see lenders acquire control of RCom by converting part of their loans to equity, raising alarm among bondholders.
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RCom did not immediately respond to a request seeking a comment on the downgrades. “We have been getting calls from Chinese banks who have exposure to Reliance Communications and want to get rid of it,” said a banker who offloaded debt exposure to the company in 2016 and took a ‘haircut’ of 10 cents on the dollar in the process.
It was not immediately known how much RCom owes the Chinese banks. In 2012, Chinese state banks agreed to lend $1.18 billion to the company. Reliance Communications had net debt of nearly $7 billion as of end-March. It plans to repay 250 billion rupees, or about 60 percent of the debt, by end-September after closing two asset deals.
The company has said it will complete those two deals by Sept. 30 after getting necessary approvals. Fitch cast doubt on whether RCom would be able to even accomplish those two deals, highlighting the “weakening cash generation” in the Indian wireless sector and warning about RCom’s cash flow.
Other market players were also sceptical. “We have started sharpening our pencils on the situation. My gut feeling is those two are not done deals,” said a distressed-debt investor, who requested anonymity, citing the sensitivity of the matter. RCom Chairman Ambani has said the company may pursue options including sale of a stake in its undersea cable unit to further cut debt.