Midnight News Update – Nov 21st 2017
Reliance Industries has hit the forex debt market again with a plan to borrow $800 million. Reliance Jio has already sunk in nearly Rs.140,000 crore into the telecom space and is now relying on global funding at lower costs. Reliance will be using part of these funds to retire its massive debt pile of Rs.240,000 crore to reduce the cost of debt. Jio has already reported an operating profit in the last quarter but the real challenge will arise when the large loans taken to finance the capital expenditure have to be repaid. Reliance has cash reserves to the tune of 33% of its total debt, which is comfortable.
Moody’s has upgraded Vedanta’s Corporate Family Rating (CFR) from B1 to Ba3. The rating outlook has been retailed at stable. The upgrade comes on the back of a benign operating environment and stabilizing commodity prices. This is likely to pave the way for earnings and cash flow expansion of Vedanta. The upgrade also reflects that the company has been instrumental in reducing nearly 17% of its total outstanding debt. Additionally, the product diversification of Vedanta across copper, iron ore, aluminium and oil is a de-risked model and that has also been considered in the upgrade.
With Moody’s upgrading India’s sovereign debt rating from Baa3 to Baa2, large corporates are already making a beeline for raising money in the global markets. In fact, over the last 2 months, the spread of Indian debt versus US treasuries has fallen from 235 basis points to 208 basis points in anticipation of this rating upgrade. That is likely to reduce the cost of borrowing for these corporates in dollar debt. Apart from RIL, which has already drawn up plans to raise $800 million from the global markets, others in the fray include Rural Electrification Corp and Adani Abbott Point Terminal.
In fact, the Nifty Realty Index has touched a 7-year high on the bourses with most of the positive re-rating coming after demonetization, passage of RERA and the recent sovereign upgrade. Recently, the government also approved the enhancement of the carpet area for houses for the middle income group (MIG) category under the PMAY by 25%, which is likely to be beneficial for realty companies. According to Fitch, the core funds from operations of these realty companies is likely to improve through 2018 and that is likely to be one of the key reasons why the realty sector is getting re-rated.
The Euro region, which showed signs of a sharp turnaround in growth, is up against a new form of crisis. Angela Merkel is finding it tough to do a fourth encore as her proposed coalition is in disarray. Angela Merkel’s party could not agree with other coalition partners on crucial issues pertaining to migration. Migration from Syria and Africa has been a major challenge for all EU nations and Merkel has been one of those who have propounded a more sympathetic approach towards migrants. Apart from the migrant issue, there are key issues like Russian sanctions, Macron’s proposal for a stronger Euro, outcome of BREXIT and the bailout of Greece. Europe was looking up to Merkel to provide leadership on these issues as the largest economy, but now her position and stature in the EU could stand diminished.
On the back of the dollar debt default by RCOM, Hong Kong based SC Lowy Financial HK Ltd believes that RCOM may be headed for insolvency unless it is able to sell its assets at the valuations that it claims. According to SC Lowy, the Bankruptcy Code in India could consider RCOM a fit case for referring to insolvency. RCOM has debt to the tune of Rs.44,500 crore of which it had proposed to repay debt to the tune of Rs.27,500 crore through the sale of towers to Brookfield and its deal with Aircel. With the both deals falling through, there are doubts over whether RCOM can justify its guidance.
