Multiple companies of Reliance Anil Dhirubhai Ambani group (ADAG) are suffering a huge ratings downgrade to default imminent status by multiple rating agencies. CARE Ratings has downgraded Rs12,700 crore worth of Reliance Commercial Finance’s debt to “CARE D”. “CARE D” rating indicates that the instruments are in default or expected to be in default soon. Of this, Rs12,500 crore is towards long-term bank facilities and remaining Rs200 crore is towards non-convertible debentures.
At the same time, the ratings agency has downgraded Rs4,980 crore worth of long-term debt of Reliance Home Finance to “CARE D”. In case of both Reliance Commercial Finance and Reliance Home Finance, CARE has cited the delays in servicing of instruments and stressed liquidity profile of the group as the rationale for these downgrades.
Just few days ago, ratings agencies like CARE Ratings and Brickwork Ratings had downgraded Reliance Commercial Finance, Reliance Capital and Reliance Home Finance.
CARE further states that, they have factored in linkages between the companies and their parent Reliance Communications Ltd (RCom), which are in the form of RCom’s demonstrated track record of support to subsidiaries and strategic importance of the subsidiaries to its parent along with sharing of the brand name. The moderation in RCom’s profile has weakened these linkages as the parent is not in a position to extend adequate support to its subsidiaries, the ratings agency says.
Separately, ratings agency ICRA has also downgraded commercial papers worth Rs1,200 crore of Reliance Home Finance to “ICRA A4”.
“ICRA A4” indicates that the instruments are considered to have minimal degree of safety regarding timely payment of financial obligations and that, such instruments carry very high credit risk and are susceptible to default. ICRA also cites the rational for such downgrade to incapability of Reliance Communications to support its subsidiaries given the slow pace of monetisation of the company’s non-core investments.
In a statement, a spokesperson for Reliance Commercial Finance stated, "RCFL has been affected by a timing mismatch in regard to the ongoing further securitisation or monetisation proposals with banks and the same has resulted in minor delay on principal repayments aggregating to only Rs477 crore to five-six banks, and limited only to its bank borrowings. RCFL expects to regularise all such repayments very shortly."
"RCFL has already completed securitisation of over Rs2,200 crore from 1 October 2018 till date, and is engaged in active discussions for further securitisation or monetisation of its asset base. RCFL is also completely current and regular on principal repayments on all its capital market borrowings aggregating Rs3,071 crore," the company added.
Similarly, in a statement, a spokesperson for Reliance Commercial Finance stated, "RHFL has been affected by a timing mismatch in regard to the ongoing further securitisation or monetisation proposals with banks and the same has resulted in minor delay on principal repayments aggregating to only Rs542 crore to around five-six banks, and limited only to its bank borrowings. RHFL expects to regularise all such repayments very shortly."
Reliance Commercial Finance says it has "already completed securitisation of over Rs5,500 crore from 1 October 2018 till date, and is also completely current and regular on principal repayments on all its capital market borrowings aggregating Rs7,708 crore."
According to a report from the Mint
, several asset management companies (AMCs) like Reliance Nippon AMC, Aditya Birla Sun Life AMC, and DHFL Pramerica AMC have exposure in Reliance Commercial Finance; eight out of 13 schemes are fixed maturity plans (FMPs).
It is unclear how much debt held by mutual fund schemes has been individually affected by the downgrade, the report says.
A spokesperson from DHFL Pramerica AMC told the Mint, “Our exposure to Reliance Commercial Finance is a structured transaction based on the credit enhancement offered by the Parent—Reliance Capital which is rated Care A. As such our structure also carries the rating of Care A (So). There is no change in the ratings of our instrument despite the change in rating of Reliance Commercial Finance on a stand-alone basis."
“Kotak Mutual Fund recently held back some of its FMP units against payments due from the Essel Group and HDFC Mutual Fund rolled over (extended) the maturity of one of its FMPs with Essel exposure. A surge of redemptions from some AMCs like DHFL Pramerica Mutual Fund has also caused their exposures to the troubled groups to breach SEBI limits. The Regulator has not initiated any penal action in this regard at this point of time,” the report added.