Lenders reluctant to convert RCom’s debt to equity under SDR

MUMBAI: Lenders to Reliance Communications Ltd (RCom) are reluctant to convert their debt into equity if the company doesn’t provide strong visibility on how it plans to reduce debt before December, three bankers aware of the matter said.

RCom’s big creditors plan to meet later this week to discuss what to do next after the company controlled by Anil Ambani called off the planned merger of its wireless business with Aircel Ltd, citing regulatory delays and opposition from operational creditors.

The merger of the wireless business with Aircel and a separate deal to sell RCom’s telecom tower assets was the cornerstone of the telecom firm’s plan to pare its ₹45,000-crore debt.

In June, a consortium of lenders led by State Bank of India invoked Strategic Debt Restructuring (SDR) in the case of RCom, allowing them to convert debt into equity. Banks allowed RCom a breather on debt servicing till December, pending the completion of the two transactions. During this so-called standstill period, there was to be no conversion of debt to equity under SDR.

RCom continues to be in “a standstill period” till December 2018 and expects to complete the restructuring process as per the rules, the company said in an October 1 statement. Its shareholders have approved the issue of equity shares to lenders by converting loans.

Under SDR, banks have the ability to convert part of their debt in a stressed company to 51% equity, allowing them to take operational control and sell the company to a suitable buyer.

“The debt of the company is 11 times its market capitalisation. Unless the company is able to deliver on its monetisation plan, it doesn’t make sense to convert debt into equity,” said one of the bankers cited earlier. Under RBI norms, banks have to set aside at least 50% of their exposure as provisions for bankruptcy cases taken to the National Company Law Tribunal.

At Tuesday’s closing price, RCom’s market capitalisation stood at ₹4,256 crore. Its debt at the end of June was close to ₹45,000 crore. RCom shares closed at a fresh low of ₹17.10 on the BSE, down 10.94% from their previous close