Credit outlook under pressure if RCom doesn't reduce debt soon: Moody's

Moody's Investors Service, while downgrading Reliance Communication's ratings to 'negative', warned that the credit outlook could be reduced further if necessary to reduce the debt are not taken. 

On Wednesday, Moody's downgraded rating of Reliance Communications (RCom) to B1 from B2.

Moody's warned RCom that the rating could go further down if the company fails to stem the erosion in its leverage over the next 6-9 months. 

Moody's said the outlook is negative and primarily reflects RCom's uncertainty regarding the timing and completion of its announced restructuring; and the resultant range of leverage and business risk profiles.

Annalisa Di Chiara a Moody's Vice President and Senior Credit Officer said,”The downgrade primarily reflects our expectation that RCom's leverage, as measured by consolidated debt/EBITDA (including Moody's adjustment for spectrum liabilities) will remain above 7x over the next 6-9 months while the company pursues regulatory, shareholder and debt holder approvals for its announced restructuring, including the de-merger of its wireless business and sale of its tower assets.”

As of September 2016, RCOM's adjusted debt stood at $7.5 billion. 

The agency further expects pure earnings of RCOM'S from domestic operations to remain under pressure over the next 6-12 months in light of intensifying competition in India's telecom sector. 

Moody's said, "The outlook could stabilise if RCom's consolidated debt/EBITDA falls below 6.0x on a sustained basis over the next 6-9 months."