RCom works out ₹39,000cr debt reduction strategy

Sale of spectrum, fibre and tower network, equity injection as well as development of real estate assets

MUMBAI: Reliance Communications Ltd (RCom) has finalised a debt resolution plan that involves the sale of its assets and does not require lenders and bond holders to write off their dues or convert it into equity. The company has also exited the strategic debt restructuring process (SDR), RCom said on Tuesday.

According to the plan, which includes the sale of spectrum, fibre and tower network, equity injection by global strategic partners and development of real estate assets, RCom’s debt will be reduced by ₹39,000 crore from the ₹45,000 crore it owed lenders at the end of October. RCom will reduce debt by ₹25,000 crore by selling assets and transferring its spectrum dues to third parties. The entire proceeds will be used for prepayment to lenders, said chairman Anil Ambani.

“Lenders have received the final binding bids and all transactions are expected to be closed in a phased manner between January and March 2018,” the company said in an exchange filing.

The process and bids were vetted by an evaluation panel appointed by the joint lenders’ forum. The panel was chaired by SS Mundra, a former deputy governor of the RBI.

The company did not disclose the names of the bidders.

RCom shares surged 42% on Tuesday before closing up 31%. The shares have gained 82% in the past five trading sessions, reducing this year’s loss to 37%.

“As far as banks are concerned, the plan is positive as there were expectations that the lenders might have to take some haircut for resolution. But over the next few days, more clarity will emerge,” said Alpesh Mehta, deputy head of research at Motilal Oswal Securities.

In June, lenders had invoked SDR provisions after the company presented a restructuring plan that involved hiving off and merging its wireless business with Aircel Ltd and selling a majority stake in its tower unit to Brookfield Infrastructure. Under the plan, lenders gave the company a breather on its interest payments until December 2018.

However, the merger with Aircel fell through, and in October, the company presented a fresh debt repayment plan to its creditors, which envisaged raising ₹27,000 crore through the sale of assets including spectrum, real estate and towers and further reduction of ₹7,000 crore after lenders converted this into equity for a 51% stake. According to the SDR norms, lenders had to convert debt into equity by December 28, said bankers.

Ambani said that the new resolution plan also includes development of the Dhirubhai Ambani Knowledge City (DAKC), which comprises 125 acres of real estate. This will lead to reduction of RCom’s debt by ₹10,000 crore.

The real estate at DAKC is held by a special purpose vehicle, which will have long-term debt financing on a non-recourse basis, the firm said in an exchange filing. “There will be only recourse to real estate assets that are there in the SPV. It has no other recourse to RCom or anything else at all,” he said.

The resolution plan comes at a time when China Development Bank (CDB) has dragged the company to the National Company Law Tribunal for insolvency proceedings. RCom owes around $2 billion to Chinese lenders.

In response to a question on the pending insolvency petitions, Ambani claimed that RCom had received a go-ahead from all lenders, including overseas ones, for the resolution plan.

“Today, the fact of the matter is, we have had an understanding and an arrangement with all the lenders to ensure a substantial prepayment, the residual debt to be duly addressed and a viable business model for the new RCom with no risk to the banks of conversion, write offs etc,” he said.

Ambani said with the completion of these transactions, the residual firm, or new RCom, will be a business-to-business focused firm consisting of its private subsea cable system, 4G spectrum sharing with Jio, and a data centre business, among others.

The residual debt in this firm is expected to be ₹6,000 crore.

He said the company has started the process of finding global strategic partners for the new RCom and has received nine non-binding applications.