CARE downgrades Reliance Cap’s ₹21,000-cr debt; company terms it ‘unjustifiable and inappropriate’

CARE Ratings has downgraded Reliance Capital’s debt aggregating ₹21,000 crore due to the delay in sale of group assets, coupled with lower than envisaged fund inflows as per the timelines committed by the company’s management.

The rating has been downgraded to ‘A+’ from ‘AA’, with the ratings continuing to be “on credit watch with developing implications”.

According to CARE Ratings’ rationale, RCL’s management has further revised the timelines, which is expected to delay its deleveraging plan. The rating revision also takes cognisance of moderation in financial flexibility of RCL with higher proportion of promoters’ shares being pledged, difficulty in raising resources in the light of tighter funding environment prevailing for the NFBC sector, and substantial reduction in liquidity buffers, it added.

Terming the rating action as unjustifiable and inappropriate, Reliance Capital said it is on track to reduce its debt by about ₹10,000-12,000 crore in the next three-four months.

Deleveraging strategy

The reduction, which is 50-60 per cent of Reliance Capital’s debt, will be achieved by monetisation of its 43 per cent stake in Reliance Nippon Life Asset Management (RNAM) and 49 per cent stake in Reliance General Insurance Company (RGICL), along with several non-core investments, the company said in a statement.

The completion of these transactions will be a major step forward in Reliance Capital’s deleveraging strategy, it added.

Reliance Capital, a private sector financial services company, is at an advanced stage of monetising several valuable non-core investments, including a strategic stake-sale in Prime Focus and other media assets, it added.

CARE has disregarded imminent liquidity events that will substantially reduce the overall debt, and the rating agency has “arbitrarily” refused to provide an opportunity to meet the external member of the review committee, said Reliance Capital.

The constitution of the review committee – mainly comprising employees of the rating agency – is biased and designed to affirm all proposed rating actions, it added.

“CARE has turned the review process prescribed by SEBI into a futile, pointless and unfair exercise,” said Reliance Capital. The rating agency has revised the ratings on outstanding long-term debt programmes aggregating ₹18,000 crore; subordinated debt aggregating ₹2,000 crore; and market-linked debentures aggregating ₹1,000 crore.

“Further, the ratings take into account RCL’s sizeable exposure to group companies in the non-financial business segments having weak financial profiles and requiring continued support from RCL. While some of these group entities have been identified by RCL for divestment, timely exit from these investments will be critical for reducing its leverage,” said an agency statement.

Going forward, CARE said RCL’s ability to maintain liquidity levels and divest group exposures as envisaged and unlock value in a timely manner, thereby reducing leverage, will act as key rating sensitivities.

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