(Bloomberg) -- Shares and bonds of billionaire Anil Ambani’s Reliance Communications Ltd. tumbled, extending their declines from last week, amid mounting concerns about the Indian phone carrier’s debts.
The stock plunged as much as 24 percent, hitting an intra-day record low of 19.70 rupees, in Mumbai trading on Monday and was the day’s worst performer on S&P BSE500 index. Shares of other Ambani-controlled companies also fell. The company’s $300 million, junk-rated note due in 2020 declined as much as 12.9 cents on the dollar to 71.1 cents, according to prices compiled by Bloomberg.
The Economic Times reported on Monday that Reliance was behind on its loan obligations, in the latest blow spooking investors of what was once India’s second-largest mobile-phone carrier. Last week, Reliance bonds plunged 17 cents and its shares tumbled 16 percent amid concerns over the company’s debts.
Reliance has defaulted on loan servicing obligations and Indian banks have put the company’s loans into "special mention accounts," which means interest payments are overdue, according to the Economic Times report, which cited an unidentified bank official. The company said it’s planning to raise 250 billion rupees ($3.9 billion) from asset sales that should cover all its debt obligations, according to the report.
A Reliance representative declined to comment on the Economic Times report. The company plans to hold a post-earnings call with analysts and investors at 4 p.m., local time, on Monday. The wireless carrier is awaiting formal confirmation by the lenders for "waivers of certain loan covenants,” the company said in a May 27 exchange filing without elaborating.
Cracking Down
Reliance’s debt concerns come as India’s government is cracking down on the world’s worst bad-loan ratio and pushing lenders to recognize hidden stress in their loan books.
“Banks are certainly under pressure to tackle the non-performing assets so quite a few marginal cases that aren’t bad loans have also come under strong scrutiny,” U.R. Bhat, director at Dalton Capital Advisors India Pvt. in Mumbai, said in a telephone interview, though he declined to comment specifically on Reliance. “The whole system is more serious now and not focusing on gaming the rules.”
As to Reliance, the phone carrier is asking its lenders for more time to repay some of its U.S. dollar and rupee-denominated bank loans, with both sides in discussions to reach a settlement, according to people familiar with the matter, who asked not to be identified as they weren’t authorized to speak publicly on the matter. Reliance is seeking to pay its dues before the debts are classified as non-performing assets under Reserve Bank of India guidelines, according to the people.
Reliance’s net debt topped $6.8 billion, or 1.8 times its shareholders’ equity, as of the end of March from a multiple of 1.5 a year earlier, according to the company.
The company has an inadequate risk profile because its cash and operating cash flow in the coming months are unlikely to cover short-term debt and capital expenditure, according to a Monday note from Lucror Analytics.
Separately, the company on Saturday reported its first-ever annual loss and said it’s seeking waivers on some bank loan covenants.
Reliance earnings have suffered as the company, whose value has fallen below $1 billion, struggles to compete in one of the world’s cheapest and most competitive mobile-phone markets. Adding to competitive pressure on carriers, Ambani’s older brother Mukesh roiled the industry last year by starting his new Jio service with free calls and months of free data.
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