Moody's to review R-Com rating

Moody's said that estimations for RCOM's adjusted consolidated debt/EBITDA has deteriorated further during the quarter ended June, 2016

Moody’s Investors Service is re-evaluating the credit profile of Reliance Communications (RCOM), following the proposed merger of its wireless business with Aircel. On Wednesday, RCOM announced that it had signed an agreement with Maxis Communications Berhad, promoter of Aircel, to merge their wireless businesses.  

Moody's in its note said that estimations for RCOM's adjusted consolidated debt/EBITDA has deteriorated further during the quarter ended June, 2016, from its level of 6.5x as of March 2016, due to the decline in reported EBITDA. This is well above the agency’s downward rating trigger of 4.0x. However, RCOM also announced that its debt levels would fall by Rs 20,000 crore.

While the merged entity will run as a separate business to RCOM, it will remain a sizeable part of the wider telecommunications group and will likely be supported by RCOM in distress. Therefore, we will most probably — on a pro rata basis — consolidate RComm's stake in merged company into RCOM's financial metrics.

"While we view the combination of the wireless businesses positively, we will also need to re-evaluate the credit profile of RCOM in conjunction with the proposed organisational and financial restructuring, as the remaining business will be smaller in scale with a weaker business risk profile," says Annalisa Di Chiara, a Moody's vice president and senior credit officer, and also a Moody's lead analyst for RCOM.

"We had expected a significant reduction in RCOM's absolute debt levels, primarily through the sale of non- core assets in support of the company's Ba3 ratings. However, even with the merger pro forma leverage will remain above our tolerances for a Ba3 rating. Moreover, uncertainty around the closure of the proposed tower sale announced in December, 2015, continues to weigh on the rating," adds Di Chiara.