The Bermuda-incorporated GCX is a wholly-owned subsidiary of RCom through an intermediary holding company Global Cloud Xchange, which is 100 percent owned by Rcom, and owns five subsea cables of over 68,000 kms with 46 landing stations across 27 countries.
RCom had announced an asset monetisation programme to exit the SDR since June last year, by repaying lenders, Moody’s said. However, it can be noted that the fate of the Rcom is unclear with the 27 August deadline as well as the subsequent 15 days of the additional window being passed. Even the last week’s Supreme Court stay on the 12 February RBI circular does not cover the stressed telecom accounts.
“Although the GCX management announced it is evaluating several refinancing options on its recent earnings call, a binding and definitive agreement is yet to appear which increasingly weighs on the ratings,” Annalisa DiChiara, a vice president and senior credit officer at Moody’s said.
Some of the options require RCom to exit the SDR process, a situation, which “lends to ongoing uncertainty around the completion of any agreement and GCX’s ability to access the market under current circumstances”, she added.
At present, GCX has $350 million senior secured bonds maturing on 1 August, 2019. Its access to public markets has been shut since RCom entered the SDR process in June 2017, Moody’s said.
While RCom expects to exit SDR on completion of its spectrum assets sales to Reliance Jio by the end of the month, the matter is still stuck in the Supreme Court, it said, adding further delays on this are possible.
At the earnings call, GCX had said that it was working on multiple refinancing options, including sale a sale to a new partner, a privately negotiated loan facility, and tender and new issue offer.
“We anticipate management will execute a definitive refinancing plan over the next 60 days without loss to bondholders, failing which the ratings will be downgraded,” warned DiChiara.
At present GCX has a cash balance of $38 million and a commitment to pay an interest of $12.25 million next February if it does not refinance the $350 million bonds by then, Moody’s said.
She also said GCX had guided towards earning a pretax profit of $70 million for FY19 at the earnings call. At present, the B3 rating is done considering the “relatively stable” operating performance, but “intensifying refinancing risk and limited access to capital — in view of the negative overhang from its parent’s restructuring process — continue to weigh on its ratings”, the note said.
The ratings could be downgraded if GCX is unable to demonstrate access to the capital markets to fund the $350 million notes refinancing without loss to bondholders, it said, adding that a successful refinancing in next two months will stem downgrade ratings pressure.
Unless it refinances the 2019 notes, a rating or outlook upgrade back to stable is “unlikely”. A successful completion of a refinancing can trigger an upgrade of a notch or more as it would materially improve its liquidity profile and capital structure without loss to bondholders, it said.
A definitive sale-and-purchase agreement, inclusive of a definitive refinancing plan for the outstanding bonds within the next two months, will also be positive for the ratings, the agency said.