RCom gets 7-month breather from banks
LENDERS GIVE TIME TILL DECEMBER ON INTEREST, PRINCIPAL PAYMENT ANIL AMBANI TELLS INVESTORS FIRM WILL GET BACK IN SHAPE
Lenders have decided to give Reliance Communications (RCom) time till December to make interest and principal repayment so that the company could sell assets and reduce debt, even as they took the strategic debt restructuring (SDR) route for the Anil Ambani group-owned firm.
“We are undertaking two transactions to sell our assets, which would be the largest-ever debt reduction by any Indian company,” Reliance Group Chairman Anil Ambani said here on Friday.
The company has decided to hive off its wireless telephony business, which would be merged with Aircel and help reduce debt by ~14,000 crore, Ambani said. The new company would be named Aircom.
RCom will also be selling a majority stake in its telecom tower business to private equity fund Brookfield for ~11,000 crore and hold an economic interest of 49 per cent. “We plan to complete both transactions by September this year and we will be out of the SDR much before the December deadline,” Ambani said.
In a meeting of the Joint Lenders’ Forum, the banks opted to use SDR on the RCom account, which would help treat the loans as a standard asset for 18 months. This would in turn help lenders from making huge provisions for weak or stressed assets. Banks, however, need to set aside more amounts for standard asset provision than in the normal course.
RCom had a total debt of ~45,733 crore as of March this year and has defaulted on payments to a few lenders. A few banks had treated the account as a special mention account.
Apart from the two transactions, Ambani indicated that the company would look to sell a stake in its overseas undersea cable company, Global Cloud Xchange (GCX), and land in Navi Mumbai and New Delhi, without giving any indication of its valuation.
The crisis for RCom was triggered by the launch of Reliance Jio, which offered free voice and data services for six months, leading to an industry-wide financial haemorrhage.
“The only way you can compete with a free service is by offering a free service,” Ambani said and added the entire industry’s financial metrics had deteriorated due to competition, high spectrum fees and high debt. RCom will also present its sustainable long-term plans for servicing the remaining debt of ~20,000 crore to the lenders.
In the event, the transactions are not completed in the above timeframe, the lenders may exercise their right to convert their debt, in accordance with applicable SDR guidelines. The scheme is subject to lenders’ formal approvals and all other approvals as may be necessary under law, RCom stated. Ambani said the company was current in all bond payments and assured investors that the company would once again retain its lost glory. “I assure all investors that once our debt restructuring is over, the company will get back into shape,” Ambani said. Since the company announced its financial results for fiscal 2017 last Saturday, its shares have lost 20 per cent of its value — making shareholders jittery.
Ambani said many of the unfortunate events related to the company were due to external factors. “Our merger with SSTL was delayed for nine months only because of one shareholder who owned 10 shares in the company which was not even worth ~1,000,” Ambani said.
The Aircel transaction also hinges on a Supreme Court case in which Aircel promoter Ananda Krishnan failed to appear before the court, leading to delays in the case. The industry metrics are falling with return on capital coming down to as low as 2 per cent which is below fixed deposit rates.