Fitch downgrades RCom, says default a 'real possibility'

Joining other rating agencies, Fitch today also downgraded Reliance Communications' debt, saying some kind of default is a "real possibility".

Earlier Moody's Investors Services, ICRA and CARE had downgraded the company's debt rating amid heightened concern over the telecom operator's loan repayment capability.

"RCom's rating downgrade reflects Fitch's belief that some kind of default is a real possibility," a Fitch statement said.

The US-based agency has flagged poor liquidity, excessive refinancing risk, "compromised" business model and delays in deal execution as key reasons for the downgrade.

"The rating action reflects Fitch's assessment that short-term liquidity has deteriorated to a position where credit risk is very high," Fitch said.

Fitch considers that Rcom's business model is "compromised in the highly price-competitive market" due to the high level of debt and loss of market share to competitors with greater resources.

"Its capital structure is unsustainable and it has excessive refinancing risk given that we expect cash generation may decline. During FY17, Rcom's revenue and EBITDA declined by 10 per cent and 30 per cent respectively," it said.

The earnings before interest, tax, depreciation and amortisation or EBITDA is a measure of any company's operating performance.

Fitch does not expect that RCom's FY18 EBITDA will be sufficient to cover its annual interest cost and maintenance capex requirements.

"Fitch Ratings has downgraded India-based Reliance Communications Limited's (Rcom) Long-Term Foreign- and Local- Currency Issuer Default Ratings (IDRs) to 'CCC' from 'B+'," Fitch said.

The debt-laden company owned by Anil Ambani has been reeling under a slew of rating downgrades over the last few days, and its shares have tanked amid reports that the firm failed on its debt serving obligations towards 10 or more local banks.

The company, last week, had reported its first annual loss since its inception of Rs 1,283 crore for fiscal ended March 2017, against a net profit of Rs 660 crore in 2015-16.

Its loss during March quarter stood at Rs 948 crore compared to a net profit of Rs 79 crore in year-ago period, hurt by the intense price war unleashed by newcomer Reliance Jio, owned by elder brother and India's richest man Mukesh Ambani. Its net debt stood at over Rs 44,000 crore at the end of March.

In the days that followed, Moody's Investors Service downgraded RCom's corporate family rating and senior secured bond rating citing weak performance and "fragile" liquidity position of the company.

As per rating agency ICRA, the debt protection metrics of RCom have further deteriorated with increase in debt and weakening in profitability.

RCom, however, has been trying to assure investors and lenders that it would repay Rs 25,000 crore before September 30 this year post completion of its two deals - sale of its tower business and merger of its wireless business with Aircel.

RCom Chairman Anil Ambani is all set to address the media tomorrow on some of these critical issues, as he seeks to calm investors' frayed nerves over its debt repayment plans.

"At end-March 2017, cash and equivalents were Rs 14 billion (Rs 1400 crore) - insufficient to pay for short-term debt of INR 109 billion (Rs 10900 crore)," Fitch said.