RCom’s leverage metrics will be further pressured if it participates in auctions: Moody’s

Ratings firm Moody’s Friday said that Reliance Communications (RCom) outlook will remain negative but the company’s FY 2015-16 results can be accommodated in its Ba3 corporate family rating and senior secured rating. RCom’s consolidated revenues for Q4 ended March 2016 were up 3.8% year-on-year (YoY) to around Rs 59 billion. Revenues from India operations, — the largest contributor — were up 6.5% over the same period. In India, a decline of 8%YoY in voice revenue in 4Q 2016 was offset by a 27% increase on non-voice revenues.

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At the same time, RCom’s global operations– accounting for approximately 19% of total revenues — reported a 4% decline in revenues in 4Q 2016. For the full year ended 31 March 2016 (FY2015-16), the company reported broadly stable revenues at Rs 221 billion, due mainly to its cancellation of licenses in five circles earlier this year.

“RCOM reported EBITDA of around Rs 74 billion, with its EBITDA margin decreasing by 0.4% over the previous year to 33.6%. The decline in EBITDA margin is in line with Moody’s expectation, owing to increased contribution of data revenues and higher customer acquisition costs,” Nidhi Dhruv, a Moody’s Vice President and Senior Analyst, said in a statement.

Moody’s estimates RCom’s adjusted, consolidated debt/EBITDA was around 6.3x for the year ended 31 March 2016, compared to 5.3x last year. This increase in leverage is notably due a Rs 38 billion increase in reported debt and the inclusion of Rs 33 billion deferred spectrum liabilities. Upon the completion of the share swap transaction with Sistema Shyam Teleservices (SSTL unrated), RCom will have adequate spectrum.

“However, should the company participate in the upcoming spectrum auctions, its leverage metrics will be further pressured,” the agency said.

RCOM has about $450 million in debt falling due in the quarter ending 30 June 2016, which includes a $350million ECB facility at Reliance Infratel (unrated), which is guaranteed by RCOM and has a cross-default with other debt. Management is still in the process of renewing this facility with the banks and expects to complete the refinancing ahead of maturity.

Failure in obtaining final renewal approvals from the banks will lead to imminent ratings downgrade, which would be more than one notch.

“There have also been further delays in the RCOM’s deleveraging plans. In December 2015, the company announced that it had entered into exclusive discussions with Aircel Limited (unrated) for a potential combination of businesses. This deal has yet to close and RCOM has extended the exclusivity period for its discussions with Aircel by another 30 days to 22 June 2016,” added Dhruv, also Moody’s Lead Analyst for RCOM.

In December 2015, RCOM entered into a non-binding and exclusive agreement to sell towers owned by its subsidiary— Reliance Infratel Limited (RITL, unrated)—to two investment companies, Tillman Global Holdings, LLC (unrated) and TPG Asia, Inc (unrated). RCOM has made a public commitment to use the entire proceeds from the sale for debt reduction.

“RCOM has also re-prioritized its strategies again, and now plans to announce the final binding tower sale transaction within two months from the completion of discussions with Aircel. This is a significant delay from our earlier expectations for the tower transaction to be confirmed within the June quarter,” Dhruv said.

Cumulatively, these transactions, when consummated, could benefit RCOM substantially. “However, in our view, changes in the company’s strategy continue to delay execution of its plans. Hence any tangible benefit to RCOM’s financial and credit profile will now be delayed for at least 6-9 months,” the agency said.

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9 Comments on "RCom’s leverage metrics will be further pressured if it participates in auctions: Moody’s"

 

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saurabh
June 3, 2016 4:59 pm 4:59 PM

got a call from reliance care that they will shutdown their CDMA service on 7th june in Bihar.

Abhishek Chatterjee
June 3, 2016 10:56 pm 10:56 PM

confirmed news na ??

Anas
June 3, 2016 4:57 pm 4:57 PM

Reliance dongle not working since 1st June in UPW circle. The cdma network is in complete shutdown and there is no info about the possible upgrade date as my sim is still waiting to get activated.

The CC guys are just saying ‘soon’ with no assurance about the date. I am a postpaid customer on a 40GB @999 plan and this mismanagement has left me without any Internet for past 3 days.

Very disappointed and pissed as I have already bought the 4G WiPOD which is lying like a showpiece.

Saurabh
June 3, 2016 4:55 pm 4:55 PM
Well these rating agencies are here just to create panic so that their own clients can have a bargain with the stock of company. An informed investor knows that RCOM is now backed by RJio and in auctions, only their name will be there in participants and funds will be taken care of by Mukesh Ambani’s Reliance. After 6 years all the spectrum held by RCOM will be in RJio’s kitty though not on papers. This news report has only arrived so that negative sentiments can be developed among small to medium investors so that they sell their stocks in… Read more »
DEVA
June 4, 2016 3:28 pm 3:28 PM

Rcom is a debt ridden company and it may not be easy to come back strongly since it lost the confidence of customers due to pathetic customer care ,wrong deductions and importantly poor coverage in gsm.
Jio is struggling to launch commercialy ,and rcom may need to merge /bought by Jio in order to survive
And revenue per user is the lowest in the industry for rcom which clearly states tat no more premium customers are with Rcom.

Anil ambani is not tat much intelligent and visionary like his elder or dad ,so untill the ownership change,nothing will change in this counter..

Anuraj
June 3, 2016 10:31 pm 10:31 PM

Sir what happened in share prices after rcom aircel merger please give advice

Ashish
June 4, 2016 5:51 am 5:51 AM

A new company will be formed so no affect on rcom shares, new shares will be launched.

Sunny
June 3, 2016 8:27 pm 8:27 PM

+1

Those who are into trading, know very well what these rating agencies are up to, coming out with stuff like this every other day. Small investors put in so much of their hard earned money expecting some profits but don’t realize that they actually end up on the losing side because only the big boys make the real money in the stock market.

Chintan
June 3, 2016 7:04 pm 7:04 PM

Well said!! its dirt fact. their greedy policy of rating agencies

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