TIME RUNNING OUT FOR RCOM

With operations facing tough competition, firm has to expedite debt reduction

Reliance Communications (RCom) is staring at a tough future as its multi-stage debt reduction plan has hit a hurdle. The key to reducing its ~45,000-crore debt was the alliance with Aircel, which involved the merger of their mobile businesses, and second, the tower deal. While the merger included transfer of ~14,000 crore of RCom’s debt to the new entity, the tower deal would have fetched ~11,000 crore (for 51 per cent stake), collectively knocking off ~25,000 crore of debt.

The merger is clearly not happening, points out RCom’s press release, due to “inordinate delays caused by regulatory uncertainties, changed industry dynamics, intervention by vested interests and policy directives impacting bank financing for telecom”.

Ericsson India had filed an insolvency case against RCom with the National Company Law Tribunal to recover dues worth ~1,154 crore. The pressure to cut debt is more than ever before, as the deadline set by lenders to make interest and loan repayments expires by the end of December 2018.

RCom is looking at an alternative plan to monetise its spectrum portfolio through trading and sharing arrangements. Barring Reliance Jio, RCom is the only operator that has 4G spectrum in the valuable 800-MHz band across 22 circles. It has spectrum of 105 MHz in the 800MHz band, while holdings across all bands is pegged at 200 MHz and is valued at ~19,000 crore for the balance of the validity period based on the last auction pricing.

While an outright sale is the best option, RCom will also need some of it for its existing customers. So, how much of it can be monetised will be crucial. The other plan was to shed its tower assets. The delay means a couple of issues RCom will have to contend with. One, the discounts Brookfield might drive, given the collapse of the Aircel deal. Second, the tenancy losses expected, given the various mergers that have played out or are expected to be completed in FY18.

Now, the company is reportedly planning to sell off its entire stake. This, however, would mean that it would receive more than ~11,000 crore anticipated.

While Telenor is merged with Bharti, the merger of Vodafone and Idea is expected to go through this financial year. Given the 4G expansions, the near-term tenancy additions and revenues will be protected, according to India Ratings and Research. But, if the tower deal is delayed further, consolidation would mean the need for lesser towers.

The launch of Jio led to the highest subscriber loss for smaller operators such as RCom and Tata Teleservices. Prior to Jio’s launch in September 2016, RCom made up 8.5 per cent of total subscribers in August 2016. This has now dropped below seven per cent.

RCom has been the second-largest loser among telecom companies after Tata Teleservices, with its subscriber count (net) getting reduced by 5.72 million in the 10 months ended June 2017. The company now has 81 million subscribers. Of the 10.4 per cent subscriber share gained by Jio, it is the smaller players who have lost the most — ceding 6.4 per cent.

It remains to be seen how the company acts upon its plan to monetise other assets such as real estate and grow its global enterprise segment and generate enough cash flows to manage debt. RCom had earlier outlined its plans to sell the real estate assets, but has not made much headway. Third party valuers, according to the company, have pegged the value of the real estate parcel at DAKC complex at ~10,000 crore.

The firm is also considering selling its fibre optic cable network. It expects the tower, fibre assets, real estate and optimisation of spectrum portfolio to generate around ~25,000 crore, which will be used to pare debt.