Moody’s downgraded India’s Reliance Communications’ (RCom) ratings outlook to negative from stable, due to delays in selling off non-core assets and its continuing high debt.
The change “reflects persistent delays” in the company’s plan to use the proceeds of sales to cut debt levels, said Moody’s senior analyst Nidhi Dhruv. He noted that there is unlikely to be a material improvement in its leverage levels, as well as associated liquidity and refinancing pressures over the next six to nine months, even if it announces an anticipated tower sale this quarter.
The negative outlook also takes into account changes in key terms of any tower sale, with Moody’s estimating the valuation could be 20-25 per cent lower than its earlier estimates of $3.4 billion.
Assuming a lower transaction value, Rcom’s adjusted leverage will decrease to about 4x-4.5x in the fiscal year ended 31 March 2018 (compared with 3.5x-4.x in its earlier expectations) from 6.2x as of end-2015.
RCom, India’s fourth largest operator with a 14 per cent market share, continues to have a strained liquidity profile and needs to refinance upcoming debt maturities, including $450 million in debt falling due in the quarter ending 30 June.
Had the company sold off tower assets within the original planned timelines, the proceeds from the sale could have been used for debt repayments, the agency said.
Moody’s noted that RCom has initiated discussions with banks for refinancing its upcoming maturities, although the facilities are yet to be agreed.
RCom’s planned acquisition of smaller rival Sistema Shyam Teleservices (SSTL), through a stock swap deal valued at about $690 million, will give it the country’s largest holding of 800/850MHz spectrum. But Moody’s said that if it participates in the next spectrum auctions, its leverage metrics will come under further pressure.
The company also announced in December it had entered into merger discussions with Aircel and last month said it had extended the exclusivity period by 60 days.
Moody’s noted that the two transactions could benefit RCom substantially in the longer term, but changes in the company’s strategy have led to significant delays in execution of its plans to improve its financial and credit profile.
A year ago the operator was pushing to sell its sub-sea cable subsidiary GCX, direct-to-home cable business, and property assets in Mumbai and Delhi. But Moody’s believes it is not pursuing the GCX and DTH business sales, as its deleveraging strategy is now hinged on tower disposals and the merger of the wireless business.
RCom has received cash proceeds of about INR3.3 billion ($50 million) through property sales, which represents less than 20 per cent of Moody’s initial expectations.