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Post-ICRA downgrade, debt concerns pile pressure on RCom shares

Reliance said it had paid half yearly interest on the 2020 bond and that it had no outstanding dues

Reuters  |  Mumbai 

A customer leaves a Reliance Communications store in Ahmedabad
A customer leaves a Reliance Communications store in Ahmedabad

Post-ICRA downgrade, debt concerns pile pressure on RComm shares 

Shares in fell nearly 10 percent on Wednesday after a sell-off in its bonds, sparked by concerns that the debt-laden firm may be unable to repay its lenders amid intense competition in the sector.

The company, controlled by billionaire Anil Ambani, is the most leveraged Indian telecom carrier and local agency ICRA this month downgraded its ratings on the company.

The bond sell-off accelerated early on Wednesday with yields spiking to nearly 21 per cent on the 2020 bonds before a statement from Reliance eased market concerns. Yields in the instrument, which ended at 6.14 per cent last week, stood at 13 per cent at 1000 GMT on Wednesday.

Reliance said it had paid the half yearly interest on the 2020 bond and that it had no outstanding dues on the bond.

"The company will continue to pay interest on respective due dates and the bonds will be repaid," it said in its statement, while declining to comment on whether it had delayed servicing of any loans.

India's telecom sector has been rattled by a price war and fall in revenues for established carriers after months of free services offered by new entrant Reliance Jio, controlled by the country's richest man and Anil's elder brother

While Reliance Jio and have entered into some pacts to offer some services jointly, Reliance Jio's cut-rate offerings have also dented Reliance Communications' as well as bigger rivals Bharti Airtel and Vodafone's local unit.

Following the ICRA downgrade on May 5, another local agency Credit Analysis & Research also cut its rating on the company's debt. Both agencies say competitive concerns will pressure profits, and Reliance Communications' highly-leveraged balance sheet.

ICRA noted the company, widely known as RCom, had "sizeable debt repayment commitments," during the year.

"RCom has a toxic balance sheet and the business model is in tatters. With the likes of Airtel facing balance sheet stress and revenue declines, it will be a challenge for RCom to repay its loans as any business stress will create cash flow issues," said a Delhi-based fund manager, who did not wish to be named.

Shares in Reliance closed 7.5 percent lower at 25.90 rupees. The stock has shed 15 per cent of its value this week.

The drop began after a sell-off in the company's 2020 bonds this week, following the recent rating downgrades and reported delays in the repayment of some loans.

The company is selling a majority stake in its tower assets to Canada's Brookfield for Rs 10,000 crores, while it is also pinning hopes on a planned merger of its wireless business with rival Aircel to help cut debt its debt by about 70 per cent, or Rs 31,000 crores.