ICRA downgrades RCom credit rating on weak biz outlook

Following pressure on earnings of Reliance Communications, ICRA today downgraded credit rating of the company for debts that it has raised.
"ICRA has downgraded the long-term rating to ICRA BB from ICRA BBB for the Rs 5,000-crore non-convertible debenture (NCD) programme and the Rs 28,116-crore long-term fund- based/non-fund based limits (including unallocated limits) of RCom," ICRA said in a statement.
Credit rating indicates capacity of a company to pay back debt.
"ICRA has also reaffirmed negative outlook to the long-term rating. ICRA has also downgraded the short-term rating to ICRA A4 from ICRA A3 plus for the Rs 7,314-crore short-term fund based/non-fund based limits (including unallocated limits) and the Rs 2,000-crore commercial paper programme of RCom," the statement said.

ICRA said that it has revises ratings of the company after taking in to account "the persisting pressures on and weakening outlook of the revenue generation and profitability of the Group given the heightened competitive intensity in the industry."
RCom posted its first ever consolidated loss in the October-December 2016 period due to increased competition in the Indian telecom market with entry on new firm Reliance Jio.

"...There has been a material erosion in the pricing power of the industry. The adverse industry scenario has made subscriber acquisition and retention difficult for all operators. In addition the Group has sizeable debt repayment commitments during the year, refinancing of which would be a key rating sensitivity," ICRA said.

RCom is in the process of merging its wireless operations with that of Aircel Group to drive the synergy benefits. In addition the Group is selling its tower business to Brookfield Infrastructure Group in order to deleverage its balance sheet.
"However, consummation of these transactions and refinancing of the debt in the RCom-Aircel consolidated entity is under process, and once concluded could change the liquidity position," ICRA said.
As per the rating agency the debt protection metrics of RCom have further deteriorated with increase in debt and weakening in profitability.
"..Its (RCom) debt-to-EBITDA ratio increased to 7.76 times (annualised) as on nine month of financial year 2017 from 6.68 times as on fiscal year 2016-end," ICRA said.