Lenders reluctant to convert RCom debt to equity under SDR

MUMBAI: Lenders to Reliance Communication are reluctant to convert their debt into equity if the company is not able to provide any strong visibility on the deleveraging process before December, said three bankers aware of the matter. RCom’s big creditors are planning to meet later this week to discuss what to do next after the Anil Ambanicontrolled company called off the planned merger of its wireless business with Aircel Ltd, citing regulatory delays and opposition from operational creditors.

The merger of the wireless business with Aircel and a separate deal to sell RCom’s telecom tower assets was the cornerstone of the Anil Ambani-controlled firm’s plan to pare its ₹45,000 crore debt, amid pressure on earnings because of aggressive tariffs offered by Reliance Jio Infocomm Ltd, controlled by his elder brother Mukesh Ambani.

The consortium of lenders led by State Bank of India had invoked the Strategic Debt Restructuring scheme for RCom in June this year under the condition that the transactions be completed. Banks had allowed RCom a breather on debt servicing till December pending the completion of these restructuring transactions. During this so-called standstill period, there was to be no conversion of debt to equity under SDR too.

RCom continues to be under “a standstill period” till December 2018 and expects to complete restructuring process as per rules, the firm had said in its 1 October statement. Its shareholders have approved the issue of equity shares to lenders by conhave version of loans.

Under SDR, banks have the ability to convert part of their debt in a stressed company to 51% equity, allowing them to take operational control and sell the company to a suitable buyer.

“The debt of the company is 11 times its market capitalisation. Unless the company is able to deliver on its monetisation plan, it doesn’t make sense to convert debt into equity,” said one of the bankers cited earlier. Under RBI norms, banks have to set aside at least 50% of their exposure as provisions for bankruptcy cases taken to the National Company Law Tribunal.

At Tuesday’s closing prices, RCom’s market capitalisation stood at ₹4,256 crore. Its debt at the end of June was close to ₹45,000 crore. RCom shares closed at a fresh low of ₹17.10 on the BSE, down 10.94% from their previous close

“We will be discussing SDR resolution plan with banks next week,” said a RCom official on condition of anonymity.

RCOM HAS CALLED OFF THE PLANNED MERGER OF ITS WIRELESS BUSINESS WITH AIRCEL, CITING OPPOSITION FROM CREDITORS AND REGULATORY DELAYS