Moody's downgrades RCom on account of weak performance

 Moody's Investors Service has downgraded Reliance Communications' corporate family rating and senior secured bond rating on account of weak performance and "fragile" liquidity position.

RCom had reported loss of Rs 948 crore in March quarter, compared to a net profit of Rs 79 crore in year-ago period, hurt by the intense price war unleashed by newcomer RJio. The rating of RCom, promoted by billionaire Anil Ambani, has been reduced to Caa1 (reflects poor quality and very high credit risk) from B2 (speculative and high credit risk). At the same time, the ratings are under review for further downgrade, Moody's said in a statement.

The downgrade reflects RCom's weak operating performance, high leverage and fragile liquidity position, Moody's Vice President and Senior Credit Officer Annalisa DiChiara said. "The company's reported EBITDA has fallen 29 per cent year-over-year, evidencing its weak market position and contracting subscriber base," DiChiara added. She said RCom's liquidity position is fragile as it has around Rs 23,000 crore short-term debt and current long term debt maturities through March 31, 2018.

Also, the company has disclosed that it is still awaiting formal confirmation from lenders for waivers of certain loan covenants. "So, the loan amount continues to be classified as a non-current liability. We believe failure to obtain could exacerbate near-term liquidity pressures," DiChiara added. Given the weak operating outlook and high competitive intensity of the Indian mobile sector, there is no scope for RCom to de-lever, absent the successful execution of its corporate restructuring, Moody's said.

It said further downward pressure on the ratings is possible if the company fails to address its liquidity position within the next three months, or fails to provide a clear refinancing plan for pending maturities over the next 12-15 months.