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Reliance ADAG companies downgraded, headed for default?

Reliance Group logo

Reliance Group Logo; Picture: IP Leaders

ICRA has downgraded Reliance capital and its subsidiaries from A2 to A4. CARE Agencies have also pushed debts of RCFL and RHFL to CARE D category. This has indicated the companies’ susceptibility to having their debts defaulted.

Bengaluru: It has been a  mere 10 days since the last rating downgrade of Reliance Capital, Reliance Commercial Finance and Reliance Home Finance. In a major hit to the huge empire, the latter two have again been downgraded by CARE and ICRA.

The Reliance Downgrade

The ratings for Anil Ambani led Reliance capital and its subsidiaries have been taken down to A4 from A2 by ICRA. Additionally, ICRA has also downgraded commercial paper issued by RCL. The A4 rating indicates that the instruments are considered to have a minimal degree of safety regarding timely payment of financial obligations. It also means that such instruments carry very high credit risk and are susceptible to default soon. ICRA blames this downgrade on the incapability of Reliance Communications to support its subsidiaries.

Anil Ambani at an event

Anil Ambani at an event; Picture: VC Circle

Adding to that, CARE Ratings has downgraded ₹12,700 crore worth of RCFL’s debt to the category  “CARE D”. This rating indicates that the instruments are in default or soon expected to be in default. Of this huge amount, ₹ 12,500 crore is towards long term bank facilities and remaining ₹ 200 crore is towards non-convertible debentures. Moreover, the agency has downgraded another ₹ 4,980 crores worth of long-term debt of RHFL to CARE D.

In case of both these rating downgrades, CARE has cited the delays in servicing of instruments and stressed liquidity profile of the group as the reason behind the harsh move.

Related Article: Reliance Acquires 5.56% stake in Vakt Holdings

What remains common in the downgrades by both agencies is that the reason lies in the deterioration in the liquidity profile of the famed group. This has been due to challenges faced by RCL and its key lending subsidiaries – RCFL and RHFL – in raising funds through traditional bank lines and debt market instruments.

All the three downgraded companies have issued statements against this move with regard to the downgrades. They have stated that ICRA’s rating action is ‘unjustified and unwarranted and with an illusory review process’.

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