Fitch Cuts Reliance Communications Junk Rating Even Further

Mumbai: Fitch Ratings downgraded Reliance Communications further into junk territory on Thursday, becoming the latest credit agency to cast doubt on the Indian mobile phone operator's ability to meet its heavy debts.

Fitch cut Reliance's long-term foreign- and local-currency ratings to "CCC" from "B-plus", and its $300 million 6.5 percent senior secured notes due 2020 to "CCC/RR4" from "B+/RR4."

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

The downgrade comes amid growing concern that Reliance Communications, also known as RCom, will struggle to pay its hefty debts. Moody's Investors Service and its Indian affiliate ICRA cut their ratings on Reliance Communications deeper into sub-investment territory earlier this week.

RCom is working to merge its mobile services division with rival Aircel and is selling a stake in its mobile masts subsidiary to Canada's Brookfield. It expects to cut its debt by about 60 percent, or Rs 25,000 crore ($3.9 billion), after the completion of the two deals.

But Fitch estimated that even then, the company's net debt would be as much as $1.6 billion with earnings before interest, tax, depreciation and amortisation of up to $250 million - giving it a leverage ratio of more than six times.

The agency said its estimates for the residual company excluded RCom's undersea cable division Global Cloud Xchange (GCX), pointing out that it had covenants in place restricting "upstreaming of cash" to the parent.

"At current and forecast levels of gearing, we do not believe GCX to be able to provide cash to support RCom's creditors," Fitch said.

The company reported its first full-year loss last month. New entrant Reliance Jio added to the intense competition in the sector and triggered a price war.

Shares in RCom lost 42 percent last month and hit a record low of 19.9 rupees on May 31 on the back of persistent worries about the company's debt and losses.

On Thursday, they rose 4.3 percent to 20.75, buoyed by a Debtwire report that said RCom was in talks to sell a stake in GCX. An RCom spokesman declined to comment on the Debtwire report.

The company's bonds due in 2020 were trading two points higher at 67/70 cents on the dollar.

($1 = Rs 64.4650)

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