RCom gains over 1% after Moody’s says Aircel news to have no impact on credit rating.

Reliance Communications gained over a percent intraday on Wednesday after Moody’s said that the merger talks falling through could have no impact on the company’s ratings.

Moody’s Investors Service said the cancellation of the merger agreement with Aircel has no impact on Reliance Communications’ current credit rating and the outlook remains negative for the company.

Moody’s had downgraded the credit rating of RCom to ‘Ca’ from ‘Caa1’ in June 2017.

“Reliance Communications Limited’s (Rcom’s) cancellation of the merger agreement of its mobile business with Aircel Limited has no impact on Rcom’s Ca corporate family and senior secured bond ratings. The ratings outlook remains negative,” Moody’s said in a statement. Credit rating indicates the capability of a company to pay back debt.

The Anil Ambani-owned telecom major will now hive off an alternate plan including monetising its spectrum bands and real estate assets.

In a meeting with Board of Directors, RCom reviewed the ongoing strategic transformation programme, and considered alternate plans for debt reduction.

The merger of mobile business of RCom and Aircel lapses with mutual consent Rcom and Aircel Limited (Aircel) had signed binding agreements in September 2016 for the merger of Rcom’s mobile businesses with Aircel, the company said in a filing to stock exchange.

It said, “Legal and regulatory uncertainties, and various interventions by vested interests, have caused inordinate delays in receipt of relevant approvals for the proposed transaction.

“Unprecedented competitive intensity in the Indian telecom sector, together with fresh policy directives adversely impacting bank financing for this sector, have also seriously affected industry dynamics. As a result of the various factors aforesaid, the merger agreement has lapsed. The Board approved the same.”

The failure of Reliance Communications’ deal with Aircel may have larger repercussions. CNBC-TV18 learns from sources that the tower sale to Brookfield has also hit a roadblock.

Indian banks may have to take a haircut of Rs 6,000 crore on Reliance Communications’ debt, reports CNBC-TV18. Foreign lenders too may have to take a Rs 6,000 crore haircut. Sources said banks may have to take over 26 percent of the company’s debt as equity, which at the current price, would account for about Rs 1,200 crore of debt.

Banks will have to get involved for the strategic debt restructuring (SDR) to continue after the deal with Aircel collapsed. If the SDR does not continue, banks would have to recognise R-Com debt as non-performing assets (NPA) this year itself which they are keen to avoid.

At 09:54 hrs Reliance Communications was quoting at Rs 17.30, up Rs 0.20, or 1.17 percent, on the BSE. It touched a 52-week low of Rs 16.75.