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As Care Ratings Downgrades Reliance Capital Debt to Default, Anil Ambani Firm Cries Foul

Reliance has defended itself by saying the servicing delays were due to a technical glitch and that the ratings agency's acting CEO was on vacation.

New Delhi: Reliance Capital’s long-term debt facilities worth Rs 15,000 crore have been downgraded to default by Care Ratings, in a move that the Anil Ambani-owned firm has called “biased, prejudiced and unjustified”.

On Friday, the ratings agency downgraded debt facilities and instruments of Reliance Capital to ‘CARE D’ (Single D) and ‘CARE PP-MLD D’, some of the lowest possible grades.

In its assessment, Care Ratings has noted the status revision takes into account the “recent instance of delay in servicing of coupon on several non-convertible debentures by the company”. However, the agency added that the coupon was subsequently serviced by Reliance Capital with a delay of one working day.

“Coupon payments of certain Non-Convertible Debentures (NCDs) of RCL were due on September 09, 2019. The Debenture Trustee for these NCDs has informed CARE (via its email dated September 11, 2019) that RCL has delayed the payment of coupon on these NCDs by one working day and paid the same on September 11, 2019. This constitutes an event of default as per CARE’s default recognition policy,” Care Ratings noted.

Server bug 

In its response to the stock exchanges on Saturday though, the Anil Ambani-owned company lashed out at the ratings agency, and noted that the one-day delay in servicing its interest payment was due to a “technical glitch in bank servers”.

“Despite the above facts, CARE has yesterday downgraded the rating to CARE D for the company’s long-term debt program, market linked debentures and subordinated debt of the Company, due to the alleged “delay” in payment of interest by ONE day. CARE has arbitrarily disregarded the above confirmation provided by third party independent parties that established the alleged delay was on account of technical glitch in bank servers, while funds had duly been arranged on the due date,” Reliance Capital noted in a letter.

Also read: PWC Quits as Statutory Auditor of Anil Ambani-led Reliance Capital, Reliance Home Finance

“CARE has acted in a pre-meditated and prejudiced manner, and has even suppressed the above facts completely in its rating action letter, thereby making it appear as if the Company had defaulted in payment of interest by a day, whereas the reality is documents had been provided to CARE that proved funds had duly been arranged on the due date, and the alleged delay was on account of technical glitches,” it added.

The financial services holding company has also warned that the actions of the rating agency will “precipitate a chain sequence of events that will gravely harm the interests of millions of retail and institutional investors having direct and indirect exposure to securities of the company”.

In an unusual sequence of events, Reliance Capital claims that Care Ratings unfairly conducted the regulatory review process in the company’s absence. And that when it tried to get in touch with the ratings agency, it’s acting CEO was on vacation.

Its letter notes:

“The final mockery of the process was CARE informing the Company, AFTER the review meeting had already ended and a decision taken in the company’s absence, that a meeting could be scheduled which obviously would have been an exercise in futility as the review had already been completed.

Even then, CARE did not give any reasonable time for such a meeting and also insisted that the meeting be held in an altogether different city, and gave just 24 hours time to company officials to plan their travel and participate in the same. CARE is functioning without a CEO as the previous CEO was sent on leave.

The acting CEO was on vacation and refused to be engaged. “