Moody's & Fitch downgrades RCom rating

After reporting the net loss of Rs 1,285 crore, both Moody's and Fitch have downgraded Anil Ambani-owned Reliance Communications Limited rating.

Moody's Investors Service has downgraded Reliance Communications Limited's (RCOM) corporate family rating and senior secured bond rating to Caa1 from B2.

Fitch Ratings has also downgraded RCom's Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) to 'CCC' from 'B+'. The agency has also downgraded the rating on RCom's $200 million 6.5percent senior secured notes due 2020 to 'CCC/RR4' from 'B+/RR4'.

"The downgrade reflects RCOM's weak operating performance, high leverage, and fragile liquidity position. The company's reported EBITDA has fallen 29 percent year-over-year, evidencing its weak market position and contracting subscriber base," Annalisa DiChiara, a Moody's Vice President, and Senior Credit Officer said in a statement.

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RCOM's liquidity position is fragile. RCOM has around Rs 230 billion short-term debt and current long-term debt maturities through 31 March 2018. In addition, the company disclosed in its financial statements 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," adds DiChiara.

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

"We believe that Rcom may struggle to refinance its maturing short-term debt given declining EBITDA and delays in executing as sales. 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," Fitch said in a note.

Moody says, that historically, the company has relied on short-term debt and covenant waivers from its banking relationships.

Should the waivers not be received, this development could have significant implications for the holders of RCOM's $300 million bond, as there are cross-payments and cross-defaults for any acceleration, in each case by the issuer or any restricted subsidiary, with respect to debt in an aggregate of $10 million.