Lenders provide RCom a breather on debt repayment
Anil Ambani says creditors satisfied with firm’s restructuring plan
MUMBAI: Creditors of Reliance Communications Ltd (RCom) have allowed the company to postpone debt servicing payments till December after it presented a restructuring plan involving the sale of its telecom tower business and the spin-off and merger of wireless assets.
Reliance Group chairman Anil Ambani said that a joint forum of lenders, which met on Friday, had “taken note of the advanced stage of implementation of RCom’s substantial progress.”
The company will create a “conservative debt profile,” Ambani said at a press conference in Mumbai as he sought to assure investors about the firm’s creditworthiness.
Over the past month, RCom shares have lost 40.14% of their value after a slew of downgrades by credit rating agencies. On Thursday, Fitch Ltd said “some kind of default is a real possibility” while cutting RCom’s debt rating to junk status.
Ambani said he was disappointed by these downgrades and was “committed to restoring credit ratings at the earliest.”
RCom plans to sell its tower business to Brookfield Asset Management Inc. for ₹11,000 crore. It plans to spin off its wireless unit and merge it with Aircel Ltd, which will result in ₹14,000 crore getting transferred to the merged entity.
This will remove ₹25,000 crore of debt from the books of RCom, which has total debt of around ₹45,000 crore. The cut of 60% “will be the largest ever debt reduction by one company in the history of India”, according to Ambani.
Banks have agreed to the moratorium by invoking the Reserve Bank of India’s strategic debt restructuring (SDR) rules, which allow them to convert part of their debt in a stressed company to equity, take operational control and sell the company to a suitable buyer.
In this case, during the so-called standstill period until December, there will no conversion of debt into equity and the company’s debt will be classified as standard debt in the books of banks, Ambani said.
He also reiterated the earlier timeline of September to close the Brookfield and Aircel transactions. Ambani added that following the completion of two transactions, the debt will repaid on a pro-rata basis. Accordingly, the proceeds received from the two transactions will be repaid according to the exposure of each lender.
Foreign lenders are also backing the plan, Ambani said. On Thursday, Bloomberg had reported that RCom was asking for loan waivers from three Chinese lenders.
In case the completion of these transactions is delayed, the Indian lenders may exercise their right to convert their debt, according to SDR norms.
“RCom is running a very tight timeline to complete the two deals,” Raj Kothari, Londonbased head of trading at Jay Capital Ltd, told Bloomberg. “The lenders will avoid making moves that may trigger a default for the company. Rather, they will be glad to take this extension until December to resolve the crisis.”
According to Ambani, even after December, the company will continue to de-leverage its balance sheets and pare debt by taking steps such as the strategic sale of DTH (Direct-To-Home) television business and global operations, which includes its subsidiary GCX Ltd.
Ambani added that the group will consider monetising its stake in the merged company (that will form after the union of its wireless unit and Aircel) in the future.
The group will also consider monetising the 49% stake it will have in the tower assets over the next three years.