Moody's places RCom rating on 'review for downgrade'

New Delhi; Moody's placed under "review for downgrade" the credit rating of Reliance Communications , a day after RCom's announcement to merge its wireless telecom business with smaller rival Aircel.

In the largest consolidation in the country's telecom sector, RCom and Aircel's majority owner, Malaysia's Maxis Communications Berhad (MCB), yesterday announced signing of definitive documents for the merger of their Indian wireless businesses.

Moody's Investors Service VP and Senior Credit Officer Annalisa Di Chiara said: "While we view the combination of the wireless businesses positively, we will also need to re-evaluate the credit profile of RCom in conjunction with the proposed organisational and financial restructuring, as the remaining business will be smaller in scale with - in our view - a weaker business risk profile."

Moody's has placed under review for downgrade Reliance Communications Ltd's Ba3 corporate family rating and senior secured rating following the announcement of its plan to merge its wireless business with Aircel Ltd and its first quarter results for the 2016-17 fiscal, it said in a statement.

India Ratings and Research however said that the merger of is a key milestone in the ongoing consolidation in the telecom sector.

Ind-Ra believes that the merger will enable the new entity RCom-Aircel to give strong competition to its peers in the backdrop of the disruption that the launch of operations by Reliance Jio Infocomm (RJio) has caused.

The combined entity RCom-Aircel will now be the third largest telecom entity in India by subscriber base, thus moving ahead of Idea Cellular Limited (Idea).

"This development coupled with RJio's penetration strategy will spur competition and in turn push tariffs lower," it said.

The spectrum acquisition strategy, particularly around 4G, is an important driver for the consolidation in the telecom sector, it added.

"The merged entity will offer strong competition to both Vodafone India Ltd and Idea which are weaker placed, as far as 4G operations are concerned," it said.

Ind-Ra believes that the sector will now have five meaningful players namely, Bharti Airtel, Vodafone, RJio, Idea and the merged RCom-Aircel-Sistema (with a new brand) as the industry moves towards data driven revenues.