Moody’s lowers RCom unit GCX rating to Caa1; outlook negative

MUMBAI: Rating agency Moody's Investors Service on Thursday downgraded Reliance Communications unit GCX Ltd's corporate family rating and senior secured bond ratings to Caa1 from B3, with negative rating outlook amid ongoing uncertainty around refinancing its maturing bonds.

"The rating action reflects the need to close a definitive refinancing plan to address GCX's $350 million senior secured bond, which matures on 1 August 2019. Although management announced that it is evaluating several refinancing options on its recent earnings call, a binding and definitive agreement is not yet in place," Moody's said in a statement.

The agency added that GCX's access to the public markets will remain shut until RCom exits the strategic debt restructuring (SDR) process.

GCX is a wholly owned subsidiary of RCom through an intermediary holding company, Global Cloud Xchange (GCXL).

GCXL is 100 per cent owned by RCOM which has been undergoing restructuring under the SDR process with the Joint Lenders' Forum (JLF) since June 2017.

The ratings action comes a day after the telecom department rejected RCom's deal to sell spectrum to Reliance Jio.

The Anil Ambani-owned company had been banking on the clearance to complete its asset sale and reduce its debt by Rs 18,000 crore.

The Anil Ambani-owned telco, under a debt of Rs 46,000 crore, had stuck a deal to sell spectrum, fibre, towers and nodes to Jio and some real estate parcels to asset management firm Brookfield, all for roughly Rs 18,000 crore.

RCom wanted to use the funds from the spectrum sale to pay 39 financial lenders and operational creditors like Ericsson.

If it fails to pay Ericsson Rs 550 crore, the telco will be dragged into insolvency, a matter which is pending in the Supreme Court and the NCLAT.

The rating agency also noted the various legal battles that the telco has been facing which is delaying its asset sale.

On September 30, GCX had $18.7 million of cash and equivalents on its balance sheet. However, the company received a large milestone payment of $57.1 million from a $63.5 million OTT contract on December 18, helping to drive the cash balance upwards of $60 million by December 31, said the agency in its statement.

"Although we expect GCX's cash level to trend above $60 million with continued execution of cash received from new Indefeasible Rights of Use (IRU) contracts and receipt of annual operations & maintenance (O&M) payments in January, GCX will have limited access to the capital markets until the parent's restructuring process is completed," says Annalisa DiChiara, a Moody's vice president and senior credit officer.

The company's next interest payment of $12.25 million is due on February 1, 2019 which is expected to be met with the cash on the balance sheet.

The rating agency said that the management remains in discussions with respect to the sale of GCX as well as negotiating the commercial terms of a private loan to refinance its maturing $350 million bond.

“The ratings outlook is negative, reflecting the ongoing uncertainty regarding refinancing of its maturing bonds as GCX's access to the public markets will remain shut until RCOM exits the SDR process,” it added.

Moody's Investors Service said that the ratings could be downgraded further if GCX is unable to demonstrate access to the capital markets to fund the refinancing of the $350 million notes without loss to bondholders.

Conversely, the ratings could see an upgrade of a “notch or more” on the successful competition of refinancing as it would “materially improve the company's liquidity profile and capital structure without loss to bondholders”, said the agency.

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