Shares of Reliance Communications Ltd. snapped their four-day losing streak, ending 4 percent higher on the BSE on Thursday. The Anil Ambani-owned company has been the worst performer on the S&P BSE Telecom Index over the past month amid worries over its mounting debt, delayed repayments, poor earnings, and a rating downgrade. BloombergQuint has compiled a snapshot of what led to these concerns….
How did it begin?
Reliance Communications on May 27 disclosed along with its fourth-quarter results that it had delayed Rs 375-crore non-convertible debenture payments by more than two months. The disclosure came even as the company reported that its gross debt had risen to Rs 45,733 crore at the end March.
What happened after that?
After the disclosure, shares of Reliance Communications declined more than 20 percent in a day, the steepest since listing. Two Indian rating agencies downgraded the company’s short- and long-term debt to default, while one global agency warned of a default and another lowered the company’s rating by a notch.
Also Read: An Ambani Default Won't Fly
Which banks are exposed?
CARE Ratings Ltd. downgraded the ratings on loans worth Rs 13,934 crore, a third of telecom operator’s gross debt, to default. More than three-quarters of the default-rated debt is held by 17 public sector banks, including State Bank of India, Punjab National Bank, IDBI Bank, Bank of Baroda and Syndicate Bank. Five private banks, including Yes Bank Ltd. and HDFC Bank Ltd., also hold the downgraded debt.
What added to debt worries?
The company posted its highest ever quarterly loss of Rs 966 crore in the fourth quarter. Its gross debt stood at 9.3 times its operational income, the highest compared to peers. The telecom operator’s interest coverage ratio, which indicates the company’s ability to service its loans, fell to 1.1 times, the weakest since at least 2011.
Why did it post losses?
Competition spurred by free services offered by Reliance Jio Infocomm Ltd., owned by Anil Ambani’s older brother Mukesh Ambani, forced rivals to cut tariffs, hurting their financials in the six months to March. Reliance Communications was no exception, and posted two straight quarters of losses, resulting in a significant stress on its cash flow.
What next?
Reliance Communications had Rs 1,319 crore of cash in its books at the end of March. In comparison, debt worth Rs 6,789 crore is scheduled for repayment in 2017-18. The company is banking on the sale of its tower assets and its merger with Aircel to pare debt by up to Rs 25,000 crore. It is also looking to refinance scheduled installments falling due in the interim period up to September 30.
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