RCom bond sell-off gathers pace after Moody's rating cut

Mumbai: A sell-off in Reliance Communications Ltd`s bonds accelerated on Wednesday after rating agency Moody`s cut its rating on the company deeper into junk territory, underscoring the extent of its debt woes.

Offshore bonds due 2020 dropped five points to 64/69 cents on the dollar on Wednesday and have now lost a third of their value since the sell-off began two weeks ago.

Shares in the Indian telecoms firm, known as RCom, also fell, sliding 9.5 percent to a life-time low of 18.10 rupees in morning trade. The stock is down more than 45 percent this month.

Concerns about RCom`s debt have grown this week after it reported its first full-year loss, a shrunken user base and higher debt. RCom also said it was in talks with banks to defer loan repayments due over the next four months.

"The deterioration of the business has exceeded our expectations. Given the uncertain outcome, the volatility will continue," said Cedric Rimaud, credit analyst with independent research firm Gimme Credit.

Moody`s cut its rating late on Tuesday on RCom debt to "Caa1 from B2," implying that its obligations are speculative and subject to very high credit risk.

Markets are now watching to see if any action will be taken by Fitch Ratings which has rated the company B-plus/Rating Watch Negative, three notches higher than Moody`s.

RCom, controlled by Indian billionaire Anil Ambani, has long relied on short-term debt and covenant waivers from its bankers, but if these waivers are not granted, it could impact RCom`s bondholders "significantly," Moody`s warned. It added that it sees no scope for RCom to deleverage amid intense competition in the telecom sector.