Banking

Reliance Communications Hit By Debt Woes as Banks Red Flag Missed Loan Payments

The company’s shares plunged as much as 20% on Monday on the back of a $150-million fourth-quarter loss and after a media report said that at least 10 lenders had classified its loans as SMA1 or SMA2.

Reliance Communications - In trouble? Credit: Reuters

Reliance Communications – In trouble? Credit: Reuters

New Delhi: Anil Ambani-owned Reliance Communications has defaulted on its loan servicing obligations with more than 10 local banks, according to a report in Economic Times.

Shares in the mobile carrier plunged as much as 20% in Monday morning trading to an all-time low, a move that market analysts was prompted by its $150-million fourth-quarter loss and worries about its heavy debt load.

The ET report has said that loans to the telecom operator have been flagged as “either SMA1 or SMA2” by at least 10 Indian lenders.

Loans in India are classified as ‘SMA’ when the interest payment from the borrower has been unpaid for a certain amount of days: if a loan hasn’t been serviced for 30 days after falling due, it’s categorised as SMA 1 and if unpaid for 60 days or more, the banks call it SMA 2.

A loan is only officially classified as a non-performing asset (NPA), which is when the bank officially has to set aside money to provide for the loan, if interest is unpaid for 90 days.

For Reliance Communications, a few banks will be forced to “treat the account as an NPA after a fortnight”, according to media reports.

The company has responded by saying that once the Aircel and Brookfield transactions go through – Reliance is currently merging its wireless business with Aircel and has sold a majority stake in its radio masts business to Brookfield – it will make “repayment of an aggregate amount of Rs 25,000 crore…on or before Sept 30, 2017”.

Reuters adds:

The company over the weekend also posted its second straight quarterly loss, dragged down by a price war in what is the world’s second-biggest mobile market by number of users.

In its quarterly results statement, however, Reliance Communications said that “pending formal confirmation by the lenders for waiver of certain loan covenants”, some loan amounts would continue to be classified as non-current liabilities.

Following a sell-off last week due to debt concerns, shares in Reliance Communications plunged further on Monday, falling to their maximum daily limit and hitting a record low of 20.60 rupees. They were down 13 percent at 22.40 rupees at 0440 GMT.

A sell-off in its 2020 bonds also resumed on Monday with yields spiking to 17.2 percent after ending at 12.3 percent last week.