Reliance Communications Ltd. on Sunday called off its merger with Aircel after the pact with the Maxis Group company lapsed, putting the focus back on its ability to repay loans as the telecom operator was banking on the deal to pare part of its debt.
“Legal and regulatory uncertainties, and various interventions by vested interests, have caused inordinate delays” in receiving approvals for the merger, the carrier said in a stock exchange filing. The company will consider an alternative plan to cut debt by sharing spectrum and selling real estate assets, it said.
The proposed deal and a plan to sell a majority stake in the tower arm to asset manager Brookfields Infrastructure Group had helped Anil Ambani-led company win a seven-month moratorium till December from lenders. Banks had invoked Strategic Debt Restructuring in June, which gave them the right to convert debt into equity, after rating agencies downgraded its debt to default in May following missed repayments. Reliance Communications expected the two deals to pare its gross debt of Rs 45,733 crore by more than half. That excludes Rs 9,675 crore deferred payments for spectrum liabilities. The tower sale is still pending.
Reliance Communications had signed a binding agreement in September last year for merging its wireless business with Aircel to create India’s fourth largest telecom operator. The agreement allowed for transfer of Rs 14,000 crore debt to the joint venture. Ambani hoped to complete the merger by September-end.
Unprecedented competition in the telecom sector, together with fresh policy directives adversely impacting bank financing, have seriously affected industry dynamics, the company said.
A senior official at a large public sector bank said the lenders will now have to find other ways to resolve the case.
A consortium of 27 lenders, led by the State Bank of India, received shareholders’ approval to convert debt into equity at the company’s 13th annual general meeting on September 26. They will collectively hold over 51 percent stake once they decide to convert their loans. The shareholders granted nod to issue 259 crore shares to banks. At a conversion rate of Rs 24.71 per share, the lenders are expected to convert Rs 6,401 crore in loans into equity.
Banks are likely to go ahead with conversion of debt to equity in December, a consultant with direct knowledge of the matter told BloombergQuint requesting anonymity. When the SDR was announced, it was expected that lenders would not have to do this, the consultant said.
Alternative Plan To Reduce Debt
Reliance Communications said it is looking at other ways that could help the company pare debt by up to Rs 25,000 crore, the company said in the statement.
It plans to monetise its real estate assets, including 125 acres at Dhirubhai Ambani Knowledge City in Navi Mumbai, and 4 acres in Delhi to raise over to Rs 10,000 crore. The development agreements will be finalised in the next few weeks.
It also plans to monetise its tower and fibre assets as already announced. The company expects to get close to Rs 10,000 crore from tower sale. Besides, it’s looking at sharing and trading spectrum, the company said.