Fitch Ratings has downgraded India-based Reliance Communications (Rcom) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) to 'CCC' from 'B+'.

Fitch has also downgraded the rating on Rcom's USD 300 million 6.5% senior secured notes due 2020 to 'CCC/RR4' from 'B+/RR4'. The Rating Watch Negative on the IDRs and notes, which has been in place since December 2016, has been removed.

Rcom's rating downgrade reflects Fitch's belief that some kind of default is a real possibility. EBITDA declined by 30% to Rs 49 billion in the financial year to end-March 2017 (FY17) from Rs 71 billion in FY16, and is likely to be insufficient in the current financial year to meet annual interest costs of Rs 35 billion and maintenance capex of INR15 billion. At end-March 2017, liquidity was poor with cash and equivalents of Rs 14 billion-insufficient to pay short-term debt of Rs 109 billion.

We believe that Rcom may struggle to refinance its maturing short-term debt given declining EBITDA and delays in executing asset sales. Rcom's capital structure is unsustainable as FY17 FFO-adjusted net leverage was over 9.0x and we do not expect that operating cash flows will improve.

Shares of the company declined Rs 0.05, or 0.24%, to trade at Rs 20.70. The total volume of shares traded was 0 at the BSE (9.01 a.m., Friday).