Rewarding Haircut

RELIANCE COMMUNICATION is racing against time to conclude the deal with Reliance Jio to sell its wireless business, towers, fibre and media nodes, for about ` 18,000 crore. Jio is expected to take on over ` 7,000 crore of RCom’s deferred spectrum liability debt. After the Jio deal, RCom will sell its remaining 66 units of spectrum (valued at around ` 3,700 crore), and is likely to make another ` 10,000 crore by selling real estate. Effectively RCom will reduce its current ` 46,000 crore debt to ` 7,300 crore of debt on paper; The estimated net worth of RCom’s remaining business is close to ` 7,000 crore.

Last year RCom’s debt-structuring deal with lenders involved banks converting ` 7,000 crore worth of debt into 51 per cent equity in RCom. Though this would have left RCom’s books with lower debt, - ` 4,000 crore – lenders are definitely better off with this approach. At least they don’t have to pay ` 7,000 crore for 51 per cent of a business that is valued at only

` 7,000 crore.