Care Ratings Downgrades Reliance Communications’ Debt to Default

Days after media reports indicated that the telecom operator was having trouble with its loan servicing obligations, bank facilities worth Rs 17,356 crore and debt facilities worth Rs 3,630 crore have now been assigned the lowest available rating for corporate debt.

Credit: Care Ratings

Credit: Care Ratings

New Delhi: Care Ratings, on Monday, downgraded the debt securities of Anil Ambani’s Reliance Communications to default, days after media reports detailed how the telecom operator was struggling with its loan servicing obligations.

In a statement, the credit rating agency pointed out that the new rating took into account “delays in the servicing of its [the company’s] debt obligations as a result of significant stress… and high levels of debt repayments”.

The agency, in its public statement, noted that bank facilities (long-term and short-term non-fund based facilities) worth Rs 17,356 crore and debt facilities worth Rs 3,630 crore have now been assigned a Care ‘D’ rating, the lowest available rating for corporate debt.

Crucially, Care says that the downgrade comes on the back of a two-month delay in loan repayments – a 90-day delay in loan servicing obligations usually indicates that a non-performing asset label should be given.

“The company has delayed the interest as well as principal repayments due on its Non-Convertible debentures. The NCD instalment of Rs.375 crore due on 7th February 2017 was paid on 10th April 2017 by the company. The company is currently in discussions with the lenders of its bank facilities for restructuring / refinancing its debt which is due for repayment. The company has witnessed significant deterioration in its financial profile and liquidity profile over the past six months due to a significant increase in the competitive intensity in the telecom industry,” the agency said.

In the last month, the telecom operator’s bonds have been downgraded by Care and other rating agencies such as ICRA over the pressure that the telecom industry is facing in light of Reliance Jio’s entry. However, the latest default rating comes only after media reports indicated that Reliance Communications was having trouble with indian lenders.

While market analysts have wondered whether credit rating agencies should have downgraded the telecom operator to default earlier, rating agencies by and large do not have access to SMA loans which banks usually share among themselves and the Reserve Bank of India.