Pedestrians walk past advertisements for Reliance Communications Ltd.’s Reliance Telecom, on a street(Photographer: Prashanth Vishwanathan/Bloomberg)

High Debt To Limit RCom’s Ability To Renew Spectrum, Says CLSA

Around half of the spectrum of debt-ridden Reliance Communications Ltd. will expire in 2021 and high leverage of the company will limit its ability to renew airwaves, leading to a sharp drop in its 2G revenue coverage, CLSA said on Tuesday.

“High leverage will limit RCom’s ability to buyback spectrum in auctions in 2021. This could drive a sharp drop in its 2G revenue coverage and potentially hit revenue,” the brokerage firm said in a report.

Reliance Communications, which is reeling under a debt of about Rs 47,000 crore, has called off merger talks with Aircel, citing “legal and regulatory” delays.

RCom and Aircel had signed binding agreements in September 2016 for the merger of mobile business and was expecting reduction of about Rs 20,000 crore post completion of the merger.

The company also said unlimited free voice offers and “irrational pricing” by all industry participants have destroyed profitability of traditional 2G and 3G mobile business.

Telecom gear maker Ericsson has filed insolvency case against the Anil Ambani led mobile services firm. RCom had failed to pay some of the dues in time and promised lenders that it will be able to service debt by end of this year. The company, however, has time till December 2018 to service debt obligation under strategic debt restructuring plans.

At present, RCom’s 2G subscribers are in the 900 and 1800 MHz bands and its 4G subscribers are on the 800MHz band. RCom’s revenue coverage of the 800 Mhz band could fall from 100 percent to 26 percent post-2021, although its merger with Sistema will boost this to 55 percent.
CLSA Report

However, RCom's inability to renew the 1800 MHz spectrum could see its revenue coverage in 900 and 1800 MHz bands fall sharply from the current 92 percent to 40 percent, adding further risk, the brokerage firm said.

RCom is in talks with investment firm Brookfield to sell its mobile towers for Rs 11,000 crore. “...the valuation was also based on the combined Aircel- RCom entity offering tenancies post-merger to the tower company. RCom-Aircel merger now off, the tower deal valuation will be impacted. RCom is working to close the sale of fibre and real estate assets,” the report said.

As per revenue share chart shown by CLSA, the share of RCom has declined from 14 percent in the last quarter of fiscal year 2008 to less than 4 percent in April-June 2017 period.