Reliance bonds sink to record low
HONG KONG: Bonds sold by Reliance Communications Ltd, the Indian mobile phone operator controlled by billionaire Anil Ambani, have plunged to a record low after the company missed an interest payment.
That marked the firm’s first failure to pay a coupon on a note in the US currency, as it battles for survival amid a shakeout in the world’s second-largest telecom market.
With India’s larger mobile players vying for market share, intensifying price competition has driven down earnings at Reliance Communications and other smaller carriers. Amid a wave of industry consolidation, the company’s plan to merge with rival Aircel Ltd collapsed.
Reliance Communications’ earnings slumped after deeppocketed Reliance Jio Infocomm Ltd, backed by India’s richest man and Ambani’s older brother, started offering free calls last year.
Years of over-spending are catching up with the company, which is struggling under a mountain of debt, and some bond investors had been anticipating the latest difficulties.
“Reliance Communications’ high leverage and sector specific challenges have been well known to investors for a long time,” said Dhiraj Bajaj, a portfolio manager at Lombard Odier.
Reliance Communications had net debt of 443.45 billion (RM28.8 billion) rupees, compared with cash, equivalents of 4.55 billion rupees as of March 31, its year-end report showed.
The interest payment of about US$9.75 million (RM41.18 million) for Reliance Communications’ notes maturing November 2020 was due on Monday, according to data compiled by Bloomberg.
If the company failed to pay interest within seven days of the due date, an event of default would occur, according to a bond prospectus.
The company was in a standstill period with its lenders until December next year. Bloomberg