Rating agency ICRA has revised its ratings for Anil Ambani-led Reliance Capital and its subsidiaries from A2 to A4 with negative implications.
"The ratings continue to be on watch with negative implications," said ICRA, adding that this reflects slow pace of monetisation of Reliance Capital's non-core investments (non-financial services businesses) and consequently no improvement in liquidity.
In addition, the liquidity of key operating subsidiaries Reliance Commercial Finance and Reliance Home Finance also remains stretched as was earlier highlighted in rating rationale whereby the debt repayments in the next six months are higher than scheduled inflows.
The visibility of raising funds by the parent is lower than prior expectations. With weakening financial flexibility amid large quantum of borrowings due for repayment in the near term, the timeliness of receipt of funds from divestments of some of its potential core and non-core investments remains critical, said ICRA.
"At the same time, while the management remains confident, they have not provided clarity on the timely recoverability of funds extended to certain groups by Reliance Commercial Finance and Reliance Home Finance, and also the funds extended to the Reliance group by Reliance Capital, which now is critical to ensure timely repayment of debt obligations," it said.
Reliance Capital called the rating action 'completely unjustified and inappropriate.' There has not been any adverse change in the company's operational parameters from the time of the last rating action, just four weeks ago.
"This rating action is limited to the commercial paper outstanding of Rs 950 crore, which would be fully repaid by September 30. The company has been working diligently to ensure timely debt repayments and the company's asset monetisation plan is on track."
Reliance Capital is in the process of monetising its entire 42.88 per cent stake in Reliance Nippon Life Asset Management, which at current market price is valued at over Rs 5,000 crore. The company expects to realise a premium on this monetisation, it said late on Friday.
The company has also announced its plans to monetise 49 per cent stake in Reliance General Insurance and the draft red herring prospectus has recently been filed with the Securities and Exchange Board of India. In addition, the company is at an advanced stage of monetisation of several of its non-core investments.
Reliance Capital expects to realise minimum proceeds of over Rs 10,000 crore, and sharply cut its overall debt by more than 50 per cent including the total amount covered by this rating action, it said.
Just a week ago, CARE Ratings had placed various existing debt instruments of Reliance Capital them on credit watch with developing implications while Brickwork placed them on credit watch with negative implications.
Both said the rating revision factors the deterioration in liquidity profile of the Reliance group due to challenges faced by Reliance Capital and its key lending subsidiaries Reliance Commercial Finance Limited (RCFL) and Reliance Home Finance Limited (RHFL) to raise funds through traditional bank lines and debt market instruments.