Indian-based Reliance Communications Limited has been downgraded by Fitch Ratings to ‘RD’ from ‘CCC’.
In a statement issued from its Singapore and Hong Kong’s office, Fitch said as a result of recent disclosures by the company it has downgraded Reliance Communications Limited’s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) to ‘RD’ from ‘CCC’.
As if that is not enough, Fitch said it has also downgraded the rating on Reliance Communications Limited’s USD300 million 6.5% senior secured notes due 2020 to ‘C/RR4’ from ‘CCC/RR4’.
As a rationale for the downgrade, Fitch said it looked at Reliance Communication’s 2 June 2017 announcement that all of 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 and present a plan demonstrating how the debt can be serviced over the long term.
Under our rating definitions, this situation constitutes a restricted default, as multiple waivers or forbearance periods have been extended in parallel following a non-payment event.
Fitch said it believes that the weakening cash generation in the Indian wireless sector may hamper Rcom’s plan to sell 51% of its tower business, Reliance Infratel Ltd. Reliance Infratel will have significant cash flow exposure to the proposed 50:50 wireless joint venture (JV) between Rcom and Aircel which faces merger execution risk as well as tough market conditions, although the JV’s other tenant Reliance Jio is backed by Reliance Industries, rated ‘BBB-‘/Stable.
Fitch added that “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”.
