Now Fitch downgrades Reliance Communications, says default a 'real possibility'

Fitch Ratings on Thursday said that it has downgraded Anil Ambani-led Reliance Communications (RCom) to CCC from B+.

Fitch has also downgraded the rating on RCom's $300 million 6.5% senior secured notes due 2020 to 'CCC/RR4' from 'B+/RR4'. "The Rating Watch Negative on the IDRs and notes, which has been in place since December 2016, has been removed," Fitch Ratings said. 

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

Pure profits or EBITDA declined by 30% to Rs 4,900 crore in the financial year to end-March 2017 (FY17) from Rs 7,100 crore in FY16, and is likely to be insufficient in the current financial year to meet annual interest costs of Rs 3,500 crore and maintenance capex of Rs 1,500 crore. At end-March 2017, liquidity was poor with cash and equivalents of Rs 1,400 crore- insufficient to pay short-term debt of Rs 10,900 crore, Fitch said. 

ALSO READ: Moody's, ICRA downgrade RCom over debt concerns

Reliance Communications is expected to hold a media conference on Friday June 2, 2017 to clear its position on these issues. 

The company, earlier this week, assured lenders that it will pay Rs 25,000 crore by September 30, 2017. 

Reliance Communcations is expected to close two deals with Aircel and Brookfield each that will earn it Rs 25,000 crore. It is this money that the company says will be used to repay lenders. 

RCom in a statement on Tuesday said, "Post signing of binding documents for the Aircel and Brookfield transactions, RCOM has formally advised all its lenders that it will be making repayment of an aggregate amount of Rs 25,000 crore from the proceeds of these two transactions, on or before 30th September 2017."

ALSO READ: Reliance Communications assures lenders of Rs 25,000 crore payment in four months

As on March 2017, RCom has a net debt of Rs 44,345.3 crore. 

Fitch Ratings said, "We believe that Rcom may struggle to refinance its maturing short-term debt given declining EBITDA and delays in executing asset sales. RCom's capital structure is unsustainable as FY17 FFO-adjusted net leverage was over 9.0x and we do not expect that operating cash flows will improve."

It further said, "Given its high level of debt, we believe that RCom's business model is compromised due to fierce price competition in the Indian mobile market. Rcom's market position is weak and it has limited financial flexibility to invest to strengthen its position or step-up marketing costs."