Anil Ambani’s Reliance ADAG Group companies – saddled with high debts and plans to offset them – are facing a series of downgrades from rating agencies. The latest is from CARE Ratings, which has downgraded long-term bank facilities worth 127 billion rupees (US$1.8 billion) held by Reliance Commercial Finance from Care BBB+ to Care D. According to the agency, a rating of “D” means instruments in this category are either in default or expected to soon be in default.
CARE also downgraded 50 billion rupees’ ($715 million) worth of debt held by Reliance Commercial Finance to Care C from BBB+.
Many debt-oriented mutual-fund schemes have exposure to papers issued by the Reliance ADAG group and these sharp downgrades are expected to evoke an adverse investor reaction. Mutual funds and non-banking finance companies (NBFCs) are now worried about the fallout.
These companies are already reeling from the shock default by Infrastructure Leasing and Financial Services (ILFS) last September. Some mutual-fund companies that had invested in unsecured corporate debt were unable to make timely payment to subscribers of fixed maturity plans.
A few days ago CARE ratings downgraded Reliance Commercial Finance and two other Reliance ADAG Group companies – Reliance Capital and Reliance Home Finance.
In a similar development, ICRA, another ratings agency, revised its ratings for Reliance Capital and its subsidiaries from A2 to A4 with negative implications.
ICRA also said the liquidity of key operating subsidiaries Reliance Commercial Finance and Reliance Home Finance remained stretched as debt repayments in the next six months will allegedly be higher than scheduled inflows.
Reliance Capital criticized ICRA’s action. It claimed there had not been any adverse change in the company’s operational parameters from the time of the last ratings assessment, just four weeks ago.
The company is in the process of monetizing its entire 42.88% stake in Reliance Nippon Life Asset Management, which at current market price is valued at more than 50 billion rupees. Reliance Capital has also announced plans to monetize a 49% stake in Reliance General Insurance. In addition, the company is at an advanced stage of monetization of several of its non-core investments.