Rating agency Moody’s Investor Services (Moody’s) said Reliance Communications’ (Rcom) scrapping its merger with Aircel has no impact on the telco’s corporate family and senior secured bond ratings. The ratings outlook though remains negative for the Anil Ambani company.
“This transaction was crucial to RCOM’s delivering plans. Absent this transaction, the company’s debt levels will remain high and its expected debt restructuring and corporate reorganization will be further delayed,” said Annalisa DiChiara, a Moody’s vice president, and senior credit officer.
The telco called off its merger with Aircel on Sunday, citing regulatory uncertainties and hinting at sabotage by “vested interests”, dealing a severe blow to the hopes of the two debt-ridden telcos to better take on stronger rivals Bharti Airtel and Reliance Jio and raising questions on their long-term survival.
Shares of Reliance Communications (Rcom) fell nearly 13% to a record low, amid investor concerns over the Anil Ambani-owned carrier’s to repay debt after the collapse of its merger deal with Aircel.
The stock Tuesday slumped to an all-time intra-day low of Rs 16.75 on the Bombay Stock Exchange, before closing down nearly 11% to Rs 17.10 a piece, its lowest level since the company was listed in March 2006.
RCom and Aircel – struggling under falling revenue, increasing losses and a shrinking user base and debt of over Rs46,700 crore and over Rs20,000 crore respectively – were hoping to combine their wireless businesses and become a stronger fourth player in an Indian telecom market plagued by a brutal price war aggravated by the entry of Reliance Jio which has severely dented industry revenue and profitability and forced rapid consolidation. They had announced a 50:50 JV back in September 2016.
The rating agency said that RCOM’s consolidated reported debt totalled Rs45700 crore at 31 March 2017, including a $300 million senior secured bond due 6 November 2020 and a $350 million senior secured bond issued by its 100%-owned subsidiary GCX Limited due August 2019.
“With the merger having failed, RCOM’s debt levels will remain elevated and leverage, as measured by adjusted debt to EBITDA, will remain above 9.0x,” said Moody’s in its report.
The rating outlook is negative, because of the ongoing uncertainty regarding the company’s cash flow-generation
capabilities, debt restructuring progress, and the recovery prospects for both lenders and bondholders.
RCom is currently undergoing strategic debt restructuring under which banks have stopped collecting interest for 210 days that end in December. The telco said on Sunday that it is in advanced discussions with banks for balance debt post de-leveraging and it continues to be under period of SDR till December end.
“Failure to meet the restructuring timetable or remaining current on the interest payable on RCOM’s $300 million bond or GCX’s $350 million bond will result in further downgrade pressure,” said Moody’s in its report.
The Ambani owned company’s ratings are unlikely to be upgraded prior to the completion of its corporate restructuring and debt restructuring, the repayment of debt and accrued interest with the proceeds from the asset sales, and the emergence of clarity on the company’s capital structure for its remaining businesses said the rating firm.
Source: Economic Times