Anil Ambani’s woes get compounded with a series of downgrades for three Reliance Group subsidiaries

• Anil Ambani is dealing with defaults on spectrum payments by his company Reliance Communications while separately battling allegations that he received a huge tax benefit from the Indian government’s Rafale deal with France.
  
• And now, he has to contend with repeated credit downgrades for three key subsidiaries: Reliance Home Finance (RHFL), Reliance Commercial Finance (RCFL) and Reliance Capital.
  
• The downgrades will make it even harder for the companies to meet loan payments.
  

Anil Ambani, the head of the indebted Reliance Group, isn’t having an easy go of it. The brother of India’s richest man, Mukesh Ambani, is dealing with defaults on spectrum payments by his company Reliance Communications while separately battling allegations that he received a huge tax benefit from the Indian government’s Rafale deal with France.

And now, he has to contend with repeated credit downgrades for three key subsidiaries.

The debt instruments of Reliance Home Finance (RHFL) and Reliance Commercial Finance (RCFL) have been downgraded by CARE Ratings, a domestic ratings agency, after the two non-banking financial companies (NBFCs) missed or delayed loan repayments.

After being downgraded 10 days ago, the long term debt programmes of both companies were given “D” ratings from an original rating of “BBB+”. This indicates that they could soon be in default.

The subsidiaries are still reeling from the larger liquidity crisis in the NBFC sector, which was precipitated by the collapse of IL&FS. In fact, since December 2018, the companies have been trying to raise cash by selling off high-quality loans.

CARE also gave the long-term debt programme of Reliance Capital, the investment banking subsidiary of Reliance Group, a D rating. In response, Reliance Capital termed the action “unjustified”. The shares of the company are down 4% so far today.

The downgrades will make it even harder for the companies to avail of funding. A number of mutual funds (MFs) and asset management companies are exposed to the three companies, and as a result, will reduce their positions. In fact, the Reliance Group’s own mutual fund wrote down the value of its holdings in RHFL and RCFL.

MFs are already reeling from downgrades to a spate of large companies like Essel, Zee Group and DHFL. As a result, they have no choice but to delay payouts to investors.


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