Pedestrians walk past a Reliance Communications Ltd. Mobile Store in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

Lenders Not Keen On Approving RCom Restructuring Plan In Current Form

Lenders to Reliance Communications Ltd. are not keen on approving the restructuring plan submitted by the telecom operator after its merger with Aircel Ltd. failed, two senior bankers directly involved in the case told BloombergQuint requesting anonymity.

Presented at a meeting earlier this week, the company’s plan asks lenders to convert Rs 7,100 crore worth of debt into equity. The banks declined to accept the conversion ratio, saying the share price quoted is much higher than what was approved under the Strategic Debt Restructuring scheme, the bankers said.

The conversion of debt into equity has to be on a fair-value basis, according to the Reserve Bank of India’s strategic debt restructuring scheme. The fair value of a stock of a listed SDR company is assessed by taking the average of the closing price in the 10 days preceding the reference date.

The group of lenders, which includes the State Bank of India, has asked RCom to call another meeting some time this month, with an adequately reworked plan.

The restructuring also envisaged sale of the company’s assets worth Rs 17,000 crore, which included RCom’s tower, fibre optic network and other telecom infrastructure businesses. The company also proposed to sell land parcels worth Rs 10,000 crore including the Dhirubhai Ambani Knowledge City.

Bankers quoted above said the plan was low on details about how the assets were to be sold and monetised. They sought clarity on the matter.

<b><i>This list is based on information shared by the credit rating agency in May 2017.</i></b>
This list is based on information shared by the credit rating agency in May 2017.

Emailed queries to RCom and SBI seeking a comment remained unanswered. Union Bank of India and Central Bank of India, which are part of this group of lenders, are also yet to respond.

The Anil Ambani-led company has been struggling to repay its Rs 45,000-crore debt after other efforts have largely failed. An approval on the resolution package from lenders will be a huge positive for the company, even as it tries to remodel itself as a 4G-focused telecom firm. RCom has already announced the closure of its 2G and 3G wireless businesses.

In October, RCom informed the stock exchanges that it had decided to pull out of the merger discussions with Aircel due to various uncertainties. The deal had been in the works since September 2016 and was awaiting regulatory approvals.

Following this, the company also said that it was reworking the tower sale to Brookfield as Aircel’s tenancies were not part of the deal. RCom’s tower deal with the Canadian investor was originally priced at Rs 11,000 crore but the value may now come down to Rs 8,000 crore since RCom has discontinued its 2G wireless business, Punit Garg, executive director at RCom, told BloombergQuint in an interview earlier.

As such, lenders are wary of categorising RCom as a non-performing asset as the debt involved is very high. They are also not interested in invoking the Insolvency and Bankruptcy Code as there are other large cases already pending resolution. The company has the benefit of a standstill on asset classification till December 2018 under the SDR scheme approved in June 2017.

For domestic banks, the resolution of the Ambani-led telecom firm will be a key issue as they find ways to deal with large stressed assets on their lending books. At the end of June, the gross NPAs of all listed banks has exceeded Rs 8 lakh crore and the number is expected to worsen as September quarter results are reported.