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Default rating puts Reliance Capital’s $5 billion debt at risk

The default rating is set to exacerbate a yearlong credit crunch among India’s shadow lenders.

Bloomberg|
Updated: Sep 22, 2019, 04.48 PM IST
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Reliance Capital Ltd.’s downgrade to default grade at Care Ratings Ltd. places the debt of embattled tycoon Anil Ambani’s conglomerate at risk, reigniting India’s credit scare.

Mumbai-based Care cut Reliance Capital’s bonds by eight notches to D from BB, citing a delay in coupon payments on several of the lender’s non-convertible debentures, the rating company said in a Sept. 20 statement. Reliance Capital group’s debt stood at about $5 billion as of September, according to a company’s spokesman.

The delay in coupon payments was caused by a “technical glitch in bank servers,” Reliance Capital said Saturday in an exchange filing, adding that the ratings company did not give the lender the opportunity to provide comments on the downgrade. Payment went through on the next working day after the delay, the shadow lender said.
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The downgrade “will precipitate a chain sequence of events that will gravely harm the interests of millions of retail and institutional investors having direct or indirect exposure to the securities of the company,” Reliance Capital said.

The debt of the Reliance ADAG Group ballooned to about 939 billion rupees at four of its biggest units as of March.

The default rating is set to exacerbate a yearlong credit crunch among India’s shadow lenders, which started with the collapse of IL&FS Group last year. Mumbai-based Reliance Capital has been trying to sell off assets to raise funds while its shares tumbled more than 90% over the past year amid the cash squeeze.

The liquidity profile of the group remains under stress due to delays in fundraising from asset monetization plan and upcoming debt repayments, Care Ratings said.
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