Moody's downgrades RCom on account of weak performance, 'fragile' liquidity

RCom's EBITDA has fallen 29% y-o-y, evidencing weak market position and contracting subscriber base

Moody's Investors Service has downgraded Reliance Communications' corporate family rating and senior secured bond rating on account of weak performance and "fragile" liquidity position.

Allaying concerns, the Anil Ambani-led Reliance Group company today said that it has told lenders that it would repay Rs 25,000 crore before September 30 this year post completion of its three different deals.

The telcos has already been downgraded by two other agencies Care and Icra.

The company is in the process to offload its tower business to Brookfield Infrastructure Group. Other two deals include merger with Sistema Shyam TeleServices Limited and with Aircel Group.

"On completion of these transactions, the residual entity will be left with a lower quantum of debt. However, the debt coverage metrics of the residual entity are expected to remain subdued," RCom said in a statement.

The company has "formally advised all its lenders that it will be making repayment of an aggregate amount of Rs.25,000 crore from the proceeds of these two transactions, on or before 30th September, 2017."

"The said amount will cover not only all scheduled repayments, but also include substantial pre-payments to all lenders on a pro-rata basis," the statement said.

RCom had reported loss of Rs 948 crore in March quarter, compared to a net profit of Rs 79 crore in year-ago period, hurt by the intense price war unleashed by newcomer RJio.

The rating of RCom has been reduced to Caa1 (reflects poor quality and very high credit risk) from B2 (speculative and high credit risk).

At the same time, the ratings are under review for further downgrade, Moody's said in a statement.

The downgrade reflects RCom's weak operating performance, high leverage and fragile liquidity position, Moody's Vice President and Senior Credit Officer Annalisa DiChiara said.

"The company's reported EBITDA has fallen 29 per cent year-over-year, evidencing its weak market position and contracting subscriber base," DiChiara added.

She said RCom's liquidity position is fragile as it has around Rs 23,000 crore short-term debt and current long term debt maturities through March 31, 2018.

Also, the company has disclosed that it is still awaiting formal confirmation from lenders for waivers of certain loan covenants.

"So, the loan amount continues to be classified as a non-current liability. We believe failure to obtain could exacerbate near-term liquidity pressures," DiChiara added.

Given the weak operating outlook and high competitive intensity of the Indian mobile sector, there is no scope for RCom to de-lever, absent the successful execution of its corporate restructuring, Moody's said.

It said further downward pressure on the ratings is possible if the company fails to address its liquidity position within the next three months, or fails to provide a clear refinancing plan for pending maturities over the next 12-15 months.

Apart from Moody's, two other agencies -- ICRA and CARE -- have also revised their ratings on the company's loan facilities.

"The reasons for these revisions include Reliance Communication's weak operating performance, high leverage, the weak internal cash flow generation against sizeable debt servicing obligations and delays in debt servicing by the company," it said in a filing to the BSE.