Reliance telecom unit gets 7-month reprieve to pay debt

Bloomberg

Reliance Communications Ltd.’s lenders have agreed to a seven-month moratorium on the debt payments of Indian billionaire Anil Ambani’s wireless business, which had its credit rating slashed in the past month.
Creditors have given Reliance Communications, or Rcom, time until December to sell its towers to Canadian asset manager Brookfield Infrastructure Group and merge the wireless business with Aircel Ltd., Chairman Ambani said at a press conference in Mumbai. These transactions will help the company reduce debt by 60 percent, he said. “This will be the largest-ever debt reduction by one company in the history of India,” Ambani said. The company will create long-term shareholder value and a “conservative debt profile,” he said.
Reliance Communications, which has lost 39 percent of its market value in the past month, is trying to assuage investor concerns after local rating firms cut the credit score on the company’s rupee-denominated bonds and loans to the lowest level, indicating that default is expected soon. The carrier has struggled to retain customers in an increasingly competitive market, particularly after older brother Mukesh’s Reliance Jio Infocomm Ltd. started last year with offers of free services.
“Rcom is running a very tight timeline to complete the two deals,” Raj Kothari, London-based head of trading at Jay Capital Ltd, said in a phone interview. “The lenders will avoid making moves that may trigger a default for the company. Rather, they will be glad to take this extension until December to resolve the crisis.”
The Brookfield and Aircel transactions are expected to conclude in September, well before the deadline laid out by lenders, Ambani said. A joint forum of the company’s lenders have taken note of the substantial progress made by Rcom, he said.
Reliance Communications delayed an installment payment that had been due on Feb. 7 on its 11.25 percent rupee bond by two months, and also pushed back the due date for principal repayment for those notes, according to a May 27 filing. Fitch said this week that “some kind default is a real possibility.”
Rcom’s stock traded at 20.65 rupees at the close of trading in Mumbai, dropping 16 percent for the week. It’s the worst performer on the S&P BSE 100 index in the past month.
The asset sales will help Reliance Communications, which reported its first annual loss last week, cut its net debt position to 200 billion rupees, Ambani said. The company’s future plans include selling its direct-to-home business and a strategic sale of the global and Indian enterprise business and data centers, he said
The company’s current net worth is 275 billion rupees, while its net assets stand at 720 billion rupees, Punit Garg, president of corporate strategy at Rcom said at briefing. Telecom companies have run out of money to pay for government airwave auctions.