Fitch Ratings Downgrades Reliance Communications’ Debt
Fitch said a credit default is now a real possibility for Reliance Communications.
Reliance Communications Ltd.’s short-term and long-term debt was downgraded to a lower status by Fitch Ratings, implying that "default is a real possibility”. This is the fourth downgrade Reliance Communications has seen in the last 72 hours after CARE Ratings, ICRA and Moody’s.
Reliance Communications’ debt was downgraded to 'CCC' from 'B+', and its 6.5 percent $300 million bond due in 2020 was downgraded to 'CCC/RR4' from 'B+', Fitch Ratings said in a media statement.
The rating revision was driven by the company’s poor liquidity position. Its cash and equivalents at the end of March will be insufficient to pay short-term debt of Rs 10,900 crore, Fitch 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.Fitch Ratings Statement
Reliance Communication is also expected to struggle in refinancing its maturing short-term debt, given decline in earnings and delay in executing asset sales, according to the ratings agency. “Its capital structure is unsustainable and it has excessive refinancing risk given that we expect cash generation may decline,” according to Fitch.
Fitch has a negative outlook on India's telecom sector as it expects credit profiles of the top four operators to be under pressure on account of intense competition and large capital expenditure requirements. New entrant Reliance Jio Infocomm Ltd. will continue to offer cheaper tariffs to gain market share from incumbents, Fitch said.