Moody’s places RCom subsidiary GCX’s ratings on review for downgrade

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GCX is a wholly-owned subsidiary of Reliance Communications Ltd. Photo: Mint

Mumbai: Rating company Moody’s on Friday positioned GCX Limited’s B3 company household ranking (CFR) and senior secured ratings on review for downgrade. GCX is a wholly-owned subsidiary of Reliance Communications Ltd. (RCom) by an middleman holding firm, Global Cloud Xchange Ltd (GCXL).

According to Annalisa DiChiara, vice-president and senior credit score officer, Moody’s, though the administration has introduced it’s evaluating a number of refinancing choices on its latest earnings name, a binding and definitive settlement is but to seem, which more and more weighs on the ratings.

“Moreover, some of the options require RCom’s exit from the strategic debt restructuring (SDR) process, a situation which lends to ongoing uncertainty around the completion of any agreement and GCX’s ability to access the market under current circumstances,” added DiChiara.

SDR was a restructuring scheme launched by the Reserve Bank of India (RBI) in June 2015 by which lenders might convert debt into fairness. However, in a more moderen directive on 12 February, the central financial institution has repealed all previous restructuring schemes.

The ranking company mentioned that GCX’s $350 million senior secured bonds mature 1 August 2019, nevertheless, the corporate’s entry to the general public markets has been shut since RCom entered the SDR course of in June 2017.

“RCom has been pursuing the completion of an asset monetization program since December 2017 to exit the SDR process. RCom expects to exit the SDR following the completion of its spectrum assets sales to Reliance Jio Infocomm Ltd by 30 September,” it mentioned, including that RCom continues to be awaiting a Supreme Court ruling associated to the matter, and as such Moody’s can not rule out additional delays.

GCX, Moody’s mentioned, communicated in its Q1 earnings name on 6 September that it’s working on a number of refinancing choices for the 2019 notes, together with the sale of GCX to a brand new companion; a privately negotiated mortgage facility; and a young and new challenge supply.

“We anticipate management will execute a definitive refinancing plan over the next 60 days without loss to bondholders, failing which the ratings will be downgraded,” says DiChiara.

As of the tip of June 2018, GCX had a money stability of $38 million, Moody’s mentioned. The firm stays present on its curiosity funds and Moody’s mentioned it expects the corporate can have greater than adequate money to fulfill its subsequent curiosity cost of $12.25 million in February 2019 assuming that the 2019 notes haven’t been refinanced by then.

“To that end, GCX had guided towards cash earnings before interest, tax, depreciation and amortization (EBITDA) of around $70-80 million by year-end March 2019 — with cash levels trending towards $70 million over the same period — on its Q1 earnings call on 6 September. The B3 ratings consider the company’s relatively stable operating performance,” it mentioned.

The review, Moody’s mentioned, will focus on the corporate’s capability to finish the refinancing of its $350 million notes inside the subsequent two months. “The ratings could be downgraded if GCX is unable to demonstrate access to the capital markets to fund the $350 million notes refinancing without loss to bondholders,” Moody’s mentioned.

However, a profitable refinancing inside the subsequent two months, it mentioned, will stem downgrade ratings strain. “The ratings are unlikely to be upgraded or their outlook return to stable prior to the completion of the refinancing of the 2019 notes,” it added.

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