The RCom a consortium of lenders mulls triggering RBI’s strategic debt restructuring for ending debt mess.
In firefighting mode following doubts over Reliance Communications’ loan repayment capability, Anil Ambani today sought to reassure investors saying the debt-laden telecom firm has been given a reprieve of seven months to service its debt.
This is a part of a strategic debt restructuring (SDR) programme that a consortium of lenders has invoked for the company that is saddled with Rs 45,000-crore debt. It is a restructuring programme of the Reserve Bank involving a conversion of debt to equity.
The RCom Chairman addressed the media here in a rare appearance following pressure from lenders over its ability to service debt. The crisis management comes within days of leading credit rating firms Fitch, Moody’s, ICRA and CARE downgrading the company.
“Our plans have been accepted by the lenders and they have constituted a joint lender forum (JLF). Reliance Communications, under the provision (SDR), will receive a standstill on serving debt obligations for a period of seven months, that is, till December 2017,” Ambani told reporters here today.
Elaborating on how the company planned to pare debt, he said RCom will receive Rs 11,000 crore from sale of its tower business to Canadian firm Brookfield Infrastructure.
This along with the merger of wireless business of RCom and Aircel, to form a new entity called Aircom, will enable the company trim debt by nearly 60 percent. “Both the transactions, we believe, will lead to a reduction of Rs 25,000 crore of debt, which is 60 percent by just two transactions,” he said.
Terming RCom’s debt reduction as the largest in the history of India, Ambani exuded confidence that the company would be able to conclude the two deals by September this year, well before the December deadline.
He said in the seven-month period, the lenders will not convert the company’s debt into equity. “There is no plan B… our plan B is plan A,” he said when asked what would the company do if the two proposed deals failed to materialize.
In case the company fails to meet the deadline, the lenders would convert debt into equity. “It is only right for the lenders to keep all options open. At the end of December, they have options to do whatever form of restructuring they want to do,” he said.
Ambani asserted that such a situation would not arise as RCom is already doing what the lenders want, that is, bringing in buyers for the two crucial assets. He said the company met with lenders today and presented its plans for a strategic transformation.
The lenders took note of the “substantial progress” that RCom has made on strategic transformation plan, especially creation of a new independent wireless company focused on India and the agreements signed with Aircel as well as Brookfield, he added.
Both domestic as well foreign lenders have accepted the company’s plans. Moreover, he said, the company is also looking at a strategic sale of a global business, including Global Cloud Exchange (GCX). Other options for paring debt include a sale of DTH and real estate assets.
Together these would help “the new RCom” — the residual entity after the wireless vertical merges with Aircel — reduce its debt, Ambani said. He also expressed disappointment on the downgrades by rating agencies but said: “we will continue to engage with them and restore the credit rating (of RCom) at the earliest”.
The problems being faced by RCom are the result of a crisis in the telecom sector and unforeseen events, he said seeking government support for the industry. RCom CFO Puneet Garg warned that the telecom industry may see up to 40,000 job losses this year and ruled that the sector is among highest taxed in India.
The cumulative tax incidence is nearly 33 percent of revenue, the company said pitching for the reduction in levies like license fee and a longer moratorium on deferred spectrum payments. Ambani, however, said RCom’s two deals will be carried out irrespective of any government action with regard to a financial relief for the sector.
RCom has been reeling under a slew of rating downgrades over the last few days and its stock has tanked amid reports that it failed on its debt serving obligations towards 10 or more local banks. The company last week reported its first ever annual loss of Rs 1,283 crore for the fiscal ended March 2017, against a net profit of Rs 660 crore in 2015-16.
Like its larger rivals, RCom too has been hit hard by intense price war unleashed by Reliance Jio, owned by elder brother and India’s richest man Mukesh Ambani.
The company’s shares ended the day at Rs 20.65 apiece, down 0.4 percent from the previous close on the BSE.