Fitch downgrades RCom, says default a 'real possibility'

Joining other rating agencies, Fitch on Thursday also downgraded Reliance Communications' debt, saying some kind of default is a "real possibility".

Earlier Moody's Investors Services, ICRA and CARE had downgraded the company's debt rating amid heightened concern over the telecom operator's loan repayment capability.

"RCom's rating downgrade reflects Fitch's belief that some kind of default is a real possibility," a Fitch statement said, reports PTI. The US-based agency has flagged poor liquidity, excessive refinancing risk, "compromised" business model and delays in deal execution as key reasons for the downgrade. "The rating action reflects Fitch's assessment that short-term liquidity has deteriorated to a position where credit risk is very high," Fitch said.

Fitch considers that Rcom's business model is "compromised in the highly price-competitive market" due to the high level of debt and loss of market share to competitors with greater resources. "Its capital structure is unsustainable and it has excessive refinancing risk given that we expect cash generation may decline. During FY17, Rcom's revenue and EBITDA declined by 10 per cent and 30 per cent respectively," it said.

The earnings before interest, tax, depreciation and amortisation or EBITDA is a measure of any company's operating performance. Fitch does not expect that RCom's FY18 EBITDA will be sufficient to cover its annual interest cost and maintenance capex requirements. "Fitch Ratings has downgraded India-based Reliance Communications Limited's (Rcom) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) to 'CCC' from 'B+'," Fitch said. The debtladen company owned by Anil Ambani has been reeling under a slew of rating downgrades over the last few days, and its shares have tanked amid reports that the firm failed on its debt serving obligations towards 10 or more local banks.