India’s Ambani needs $2b to save last bastion

Bloomberg

The last stronghold in embattled businessman Anil Ambani’s phone carrier-to-power empire is also developing fault lines.
Reliance Capital Ltd, his financial services business that almost doubled its profit in five years, had largely remained insulated from the distress plaguing the wider conglomerate. Now, the company that controls India’s fifth-biggest mutual fund, is racing to close a planned $2 billion of asset sales to bolster its finances after cash dwindled to $1.6 million as of March, according to CARE Ratings.
With $252 million of debt falling due over May and June, a unit of Moody’s Investors Service and two other local firms have slashed ratings of Reliance Capital or its short-term instruments, citing holdups in asset sales, deteriorating liquidity and risks on loans to unprofitable affiliates.
The downgrades came against the backdrop of soaring finance costs for an industry shaken by last year’s meltdown at one of the nation’s biggest shadow lenders that’s unrelated to Reliance Capital.
Asset disposals are key to averting a crisis at Reliance Capital, said Mathew Antony, a managing partner at Mumbai-based Aditya Consulting, a credit advisory firm. “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,” he said.
“We don’t foresee any issues in meeting short term or long term funding obligations,” Amit Bapna, Reliance Capital’s chief financial officer said in Mumbai. The financier expects to raise as much as 120 billion rupees in the next four months, Bapna said, which will reduce up to 70 percent of its outstanding debt.
The company told exchanges that it has short-term debt of 9.5 billion rupees, which will get fully repaid by end-September using proceeds from the sale of its stake in the asset management business. The 43 percent stake was valued at 53 billion rupees, it said.
Of the 140 billion rupees of planned divestment, almost all the transactions are behind schedule, CARE Ratings said in a statement while slashing Reliance Capital’s long-term rating to A from A+ and putting it on a “credit watch.’’
Brickwork Ratings pared it to A+ from AA last month while ICRA, Moody’s local unit, had downgraded the short-term ratings in March, saying the “timeliness of receipt of funds” from divestment “remains critical.” More cuts have followed for other group companies as well.
The conglomerate has struggled to sell assets in other firms. While Ambani managed to dispose of the Mumbai power distribution and road assets, many others, especially in telecommunications were scuttled due to regulatory hurdles or legal delays.
The strain at Reliance Capital heightens the challenges facing Ambani, 59, who’s seen his indebted telecom operator Reliance Communications (RCom) collapse into insolvency. His ventures in power, defense and infrastructure too have battled piling debt, bankruptcy cases and regulatory snags.
Anil Ambani carved out these newer businesses for himself from Reliance Industries Ltd as part of a 2005 settlement with his older brother, Mukesh Ambani, following the death of their father Dhirubhai Ambani three years earlier.
The younger tycoon’s woes came to the fore in March when Mukesh stepped just in time to settle an overdue payment and save Anil the embarrassment of a stint in jail. The value of Anil’s holdings in companies has plunged to about $120 million from a net worth of at least $31 billion in 2008, according to data compiled by Bloomberg.
ICRA has also red-flagged Reliance Capital’s “substantial exposure towards” group companies which can curb its ability to raise and repay its near-term debt obligations.
Reliance Mutual Fund wrote down about $233 million of investments in Reliance Home Finance and Reliance Commercial Finance last month.