CARE lowers RCap’s ₹17,000-crore debt to default grade

CARE Ratings has downgraded Reliance Capital Ltd Ltd’s debt aggregating to ₹17,000 crore to default grade ‘D’ from ‘BB’. The rating revision takes into account the recent instance of a delay in servicing of coupons on several non-convertible debentures (NCDs) by the company, CARE said in a statement.

The coupon was subsequently serviced with a delay of one working day, it added.

CARE observed that the liquidity profile of the group continues to be under stress on account of a delay in raising funds from the asset monetisation plan and impending debt payments. Per CARE’s rating terminology, instruments with a ‘D’ rating are in default or are expected to be in default soon. Instruments with a ‘BB’ rating are considered to have a moderate risk of default.

‘Action unjustified’

RCap, in a statement, said it had made a stock exchange filing on September 11 stating that the interest payment on the NCDs, which was due on September 9, was activated on the due date, but it could not go through owing to a technical glitch in bank servers that day, and the payment went through on the very next bank working day — September 11. This was also confirmed by the company’s lenders, who had provided financing for the payments, it added.

“Despite the above facts, CARE has downgraded the rating... due to the alleged “delay” in payment of interest by one day. CARE has arbitrarily disregarded the above confirmation provided by third-party independent parties that established the alleged delay was on account of technical a glitch in bank servers, while funds had duly been arranged on the due date,” claimed RCap.

Coupon payments of certain NCDs of RCL were due on September 9. The agency said the Debenture Trustee for these NCDs informed it (via its email dated September 11) that RCL has delayed the payment of coupon on these NCDs by one working day and paid the same on September 11. This constitutes an event of default per CARE’s default recognition policy, the agency added.

CARE assessed that RCL’s cash and bank balance (including liquid investments) had fallen to ₹19 crore as on July 31, 2019, from ₹2,941 crore on March 31, 2018. “Apart from this, RCL does not have any liquid investments or unutilised committed lines. Thus, RCL’s liquidity is critically dependent on the monetisation of its sale of group assets/investments within the given timelines, given that there are scheduled repayments of standalone debt worth ₹1,642 crore from August 2019 to December 2019,” the statement said. RCL has also further extended fresh corporate guarantees towards various group entities’ debt, it added.

“The default by the subsidiary reflects RCL’s inability as a parent to support its subsidiaries due to liquidity constraints at its level. Further, promoter and promoter group owned 41.71 per cent stake in RCL as on June 30, 2019 out of which 96.50 per cent of shares are pledged indicating stressed liquidity position,” CARE said.

RCL’s resource profile mainly comprises NCDs which have repayments spread across the period from FY19 to FY28 in the range of ₹2,000 crore to ₹3,000 crore per year.