Fitch Ratings has downgraded India-based Reliance Communications’ long-term foreign- and local-currency issuer default ratings (IDR) to RD from CCC.
Fitch has also downgraded the rating on RCOM’s $300 million 6.5 percent senior secured notes due 2020 to C/RR4 from CCC/RR4.
The downgrade follows RCOM’s announcement that its bank lenders are prepared to waive debt service obligations until end-2017 to provide time for the company to lower its debt through two proposed transactions.
RCOM had poor liquidity at end-March 2017, with cash and equivalents of INR 14 billion – insufficient to pay short-term debt of INR 109 billion.
RCOM’s EBITDA declined 30 percent to INR 49 billion in FY 2017, from INR 71 billion in FY 2016, and is likely to be insufficient in FY 2018 to meet annual interest costs of INR 35 billion and maintenance Capex of INR 15 billion.
The company says that it will meet its coupon obligation due on 6 November, and there will be no cross-default prospect while the banks loans are in standstill.
Under the bond documents, non-payment of the bank loan may trigger a cross-default under the bond documents if such non-payment continues for 30 days following written notice from either 25 percent of the bondholders or the bond trustee.
Fitch Ratings believes weakening cash generation in the Indian wireless sector may hamper RCOM’s plan to sell 51 percent of its tower business, Reliance Infratel.
Reliance Infratel will have significant cash flow exposure to the proposed 50:50 wireless joint venture between RCOM and Aircel which faces merger execution risk as well as tough market conditions.
“Even if the tower business and wireless JV transactions occur and debt is paid down, we believe the residual business is likely to be saddled with excessive debt,” Fitch Ratings said.
During the next seven months, RCOM will provide a long-term plan to service its remaining debt of at least INR 200 billion.