Anil Ambani - Back To The Wall

NBFC crisis and indiscriminate borrowing to beef up its subsidiaries is at the root of Reliance Capital’s crisis.

- Nevin John

The liquidity crisis that is roiling non-banking finance companies (NBFCs) has hit the one part of Anil Ambani’s debt-strapped business empire that was going strong — its financial services business. Three rating agencies – CARE, ICRA and Brickwork – have downgraded the borrowings of Reliance Capital (RCap) and its subsidiaries. The debt crisis, which had overtaken the Reliance Group’s telecom, power distribution and media businesses earlier, had an immediate effect on RCap shares, which fell from 184.05 on April 15 to 132.85 on April 30. They have since dropped further to 121.15 (May 7).

CARE lowered the rating of some of RCap’s debt instruments to ‘D’, which means the debt facility is either in default or is expected to be so soon. “The rating revision takes into account the recent instance of rescheduling of non-convertible debentures, and delays in servicing of bank facilities by the company,” said CARE.

ICRA pointed out that the repayment amount of two of RCap’s subsidiaries, Reliance Commercial Finance (RCFL) and Reliance Home Finance (RHFL), was going to be higher than their cash inflows in the next six months. This means the subsidiaries will have to get capital from elsewhere or they will fail to meet their repayment obligations.

Brickwork’s revision of RCap’s long-term rating placed it on “credit watch with negative implications”.

How did RCap’s debts reach such an unmanageable position? No doubt, RCap – which has called ICRA’s step “unjustified and unwarranted” – is not alone. The entire NBFC sector has been in crisis following the IL&FS crash late last year. But RCap is also paying the price of excessive ambition.