Fitch downgrades RComm credit rating to 'B+'

Fitch Ratings today said it has downgraded credit rating of Reliance Communications as it feels that ongoing joint venture plan of the company with Aircel and proposal to sell stake in its mobile tower arm will be negative for creditors.
"Fitch Ratings has downgraded India-based Reliance Communications Limited's (RCom) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) to 'B+' from 'BB-'," the agency said in a statement.
The rating agency has also downgraded the rating on USD 300 million debt raised by RCom.
"Fitch has also downgraded the rating on RCom's USD 300 mn 6.5 per cent senior secured notes due 2020 to 'B+' from 'BB-' and assigned a Recovery Rating of 'RR4' to the notes," Fitch said.

Simultaneously, the IDRs and the notes have been placed on Rating Watch Negative (RWN), it added.
"It is our view that RCom's plans to demerge its wireless business into a 50:50 joint-venture and sell 51 per cent of its tower business, Reliance Infratel, will be negative for RCom's creditors, even if receipts from the tower transaction are used to pay down debt," Fitch said.

The RWN reflects that approvals from RCom bondholders and various authorities are required before the transactions can be completed, which may take more than six months.
"The watch will be resolved when the new business and financial structure are practically certain. Should the transactions proceed as the company plans, we are likely to downgrade by a single notch, unless other funds have been raised to pay down RCom's debt," the agency said.

Fitch said that without ownership control, RCom would not have access to cash flows from either the wireless JV or the tower business, other than through dividends, and we anticipate neither would be in a position to pay a dividend for some time.
Additionally, Global Cloud Xchange (GCX) - RCom's 100 per cent owned sub-sea cable business - has covenants restricting upstreaming of cash to RCom, it further added.
Fitch said that RCom could raise further capital to pay down holding company debt through the sale of its pay-TV business, dilution of some of its stake in GCX and selling surplus real estate.