Reliance Capital dips 27% in three days on Brickwork, CARE rating downgrade

Shares of Anil Dhirubhai Ambani Group (ADAG) companies are under pressure, trading lower for the third straight day on the BSE after CARE Ratings and Brickwork Ratings revised the long-term rating for various existing debt instruments of Reliance Capital (RCap).

CARE Ratings placed them on 'credit watch with developing implications', while Brickwork has placed them on 'credit watch with negative implications'.

Reliance Capital slipped 11 per cent to Rs 135 on the BSE in intraday trade, plunging 27 per cent in past three trading sessions from a level of Rs 184 on April 15, 2019. The counter has seen huge trading volume with a combined 14.16 million equity shares changed hands on the NSE and BSE till 09:58 am.

"The rating revision factors the deterioration in liquidity profile of the group due to challenges faced by RCap 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. The financial flexibility of RCFL and RHFL has moderated and it has curtailed disbursements to conserve liquidity which has impacted the growth in business. Further the increase in cost of funds would impact the profitability going forward," Brickwork Ratings said.

The ratings have been placed on ‘Credit Watch with Negative Implications’ given the overall financial stress due to loans and investments in non-financial group entities and BWR will monitor group’s ability to raise funds from diversified resources, build up liquidity and restart fresh disbursements through its lending subsidiaries viz. RCFL and RHFL, the rating agency said in a rating rational. CLICK HERE TO READ FULL REPORT

The ratings remain under 'credit watch with developing implications' as CARE would closely monitor the progress of sale of group assets/investments as per the timelines stated by Reliance Capital in order to reduce its debt levels. Further, the ratings continue to take into account Reliance Capital’s sizeable exposure to group companies in the non-financial business segments having weak financial profiles and requiring continued support from Reliance Capital. While some of these group entities have been identified by Reliance Capital for divestment, timely exit from these investments will be critical for reducing its leverage, it added. CLICK HERE TO READ FULL REPORT

Reliance Capital, on the other hand, has said that the company considers the above 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 8 weeks ago. The Company has been working diligently to ensure timely debt repayments and the Company's asset monetization plan is on track," RCap said.

Meanwhile, according to the shareholding pattern data for March 2019 quarter filed by the company reveals that the promoters' stake in Reliance Capital has slipped below 50 per cent. Reliance Capital witnessed a 4.79 percentage point (ppt) decline in the promoter stake in the recently concluded quarter to 47.48 per cent. The promoters held 52.24 per cent stake in the company at the end of December 2018 quarter. 

Reliance Home Finance, Reliance Communications, Reliance Infrastructure, Reliance Power and Reliance Naval and Engineering were down in the range of 1 to 5 per cent on the BSE on Monday.

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