Telecom firms dip into parents’ pockets for debt bailout

As lenders open the bidding for assets of Reliance Communications (RCom) this week, telecom companies appear to have fared much better in cleaning up their debt books than steel companies. The total debt of the telecom companies that is facing stress is over ~1 lakh crore.

While RCom is selling assets, Tata Teleservices has the backing of its group, which has agreed to pay back its debts rather than ask banks to take a haircut on their loans. Telenor and Sistema, foreign telecom companies with deep pockets, have written off their losses and repaid their loans before leaving the country.

RCom has to pay its lenders over ~40,000 crore and in many ways has been a test case among telecom companies. However, sources said it had found bidders for most key assets, which include towers, fibre, spectrum in the 850, 900, 1,800 and 2,100 MHz bands, and real estate in Mumbai, Delhi and Chennai.

How much money RCom can make from these sales is open to question — estimates vary from ~30,000 crore to ~40,000 crore — but an announcement is expected in the next few days. But analysts expect the sales should be able to take care of a considerable part of RCom’s debts.

The big advantage in telecom is companies are mostly parts of larger conglomerates that have cash reserves from other businesses to pay back debt. Tata Teleservices has sold its mobile business to Airtel on a cash-free and debtfree basis, except for a ~1,600 crore payment for deferred spectrum. Tata Sons, the group holding company, will pump in ~30,000 crore as quasi-equity or inter-corporate loans to be used to pay off Tata Teleservices’ debts.

According to sources, American Tower Corporation (ATC), with which it had longterm tower deals, it will pay ~4,000 crore, or adjust the amount against its 34 per cent equity stake in ATC Telecom Infrastructure for payment in lieu of the rent for the remaining portion of the contract.

Sistema, likewise, has merged with RCom in return for a 10 per cent stake in the latter. The Russian conglomerate had pumped $4 billion into its Indian venture and had raised money from banks in India as well as abroad. A source in Sistema said all the loans were paid back with “zero write-off”.

Telenor, which sold its Indian business to Airtel, wrote off ~9,000 crore in two tranches and repaid all its debts before calling it quits in India. The focus now is on Aircel, after its failed merger with RCom.

Analysts said the company was discussing restructuring of its ~20,000-crore debt. It has a strong promoter in Malaysian telecom company Maxis, which can bring in more funds if needed. Much of Aircel’s business, especially in circles such as Tamil Nadu, is very valuable.

Sources close to the company say that the promoters are clear that they can be a value player and the fourth operator with niche markets where they have a large subscriber base. They are now in discussions with banks and have shown willingness to pump in fresh equity required to run the business.