Embattled Anil Ambani's Reliance Capital is racing against time to raise $2 billion (Rs 14,000 crore) from asset sales amid the souring of ratings and plunging cash reserves, a report says. The company controlling the country's fifth-biggest mutual fund that had doubled its profits in five years has only Rs 11 crore in cash reserves as of March, according to CARE Ratings, while the debt of about Rs 1,740 crore is due by this month (May) and June.
A unit of rating agency Moody's and two local agencies have downgraded the ratings of Reliance Capital or its short-term instruments citing delay in asset sales, deteriorating liquidity and risks on loans of unprofitable affiliates, Business Standard reports. Soaring finance costs have been plaguing the industry since last year's meltdown at one of the nation's biggest 'shadow' lenders with no connection to Reliance Capital.
Industry experts say asset disposal is the key to averting a crisis at Reliance Capital. "Unless some strategic infusion of long-term equity comes into the company, the day when Reliance Capital falls into a liquidity crisis isn't too far," the report quoted Mathew Antony, a managing partner at credit advisory firm Aditya Consulting, as saying.
The Reliance Capital share has been declining on the bourse for the past one month. It closed at Rs 135.35 on the National Stock Exchange (NSE) on Friday, plummeting from its January 1, 2019, close of Rs 221.80.
Reliance Capital informed exchanges on April 27 that it had short-term debt of Rs 950 crore that it planned to repay by September end using proceeds from the sale of its stake in asset management business. The 43 per cent stake was valued at Rs 5,300 crore, it said.
Of the Rs 14,000 crore of planned divestment, almost all the transactions are behind schedule, CARE Ratings said in an April 18 statement while slashing Reliance Capital's long-term rating to A from A+ and putting it on a "credit watch".
Rating agency Brickwork Ratings downgraded Reliance Capital to A+ from AA in April and ICRA, Moody's India unit, downgraded the short-term ratings in March, saying the "timeliness of receipt of funds" from divestment "remains critical," the report says. The conglomerate has been struggling to sell assets in other firms as well.
Anil Ambani, who recently avoided a jail term in a case involving beleaguered Reliance Communications (RCom) only by the help of brother Mukesh Ambani of Reliance Industries, managed to dispose of the Mumbai power distribution and road assets. But the intended sales of many other assets, especially in telecommunications, have been delayed by regulatory hurdles. The conglomerate's firms in power, defence and infrastructure have been battling mounting debt, bankruptcy cases, and regulatory snags.
Anil Ambani group companies have been among the worst performers on the S&P BSE500 index this year. Reliance Capital, however, has so far managed to raise its revenue and profits over the past few years. Its net income nearly doubled to Rs 1,310 crore in the 12 months through March 2018 from five years ago, while net revenue tripled to Rs 15,870 crore.