Packaging for Reliance Communications Ltd. internet dongles sit on display at a mobile phone store in Mumbai, India (Photographer: Dhiraj Singh/Bloomberg)

RCom To Exit Debt Recast Plan With Zero Write-Offs To Lenders

Debt-ridden Reliance Communications Ltd. said it will exit the Strategic Debt Restructuring plan with a zero write-off to lenders.

Instead, the company will reduce debt by monetising its wireless business and selling land parcels at Dhirubhai Ambani Knowledge City (DAKC), Chairman Anil Ambani said in a press conference today. None of the debt will be converted into equity under the new plan. Under a Strategic Debt Restructuring (SDR) plan agreed upon in June, lenders were to convert atleast Rs 7,000 crore in debt into a majority equity holding. That plan now stands aborted, days ahead of the deadline for completing the conversion. The company has debt of nearly Rs 45,000 crore.

The company launched the process to monetise a part of its wireless operations in October this year and expects these transactions to close between January to March, Ambani said. It will also form a special purpose vehicle for its real estate assets under which it will develop 20 million square feet space on 125 acre over 10 years.

RCom plans to cut debt by Rs 25,000 crore through prepayment after the asset monetisation and transfer of spectrum liabilities. Rs 10,000 crore will go towards non-recourse, long term debt to the SPV set up to develop the land parcels at DAKC.

RCom To Exit Debt Recast Plan With Zero Write-Offs To Lenders

Lenders, including Chinese banks, have agreed to the debt resolution plan, Ambani said while adding that the company intends to resolve issues with unsecured creditors in a few weeks as well. Indian banks’ telecom exposure will be reduced by more than Rs 21,000 crore.

RCom To Exit Debt Recast Plan With Zero Write-Offs To Lenders

While Ambani did not disclose the binding bids received for Reliance Communications’ assets, Reliance Jio is among those in the fray, said one person familiar with the plan. Meantime, the Chinese lenders are likely to get significant shareholding in the special purpose vehicle set up to develop the Dhirubhai Ambani Knowledge City land, said the person speaking on condition of anonymity. Reliance Communications owes its Chinese lenders, including CDB, ICBC Bank and Export Import Bank of China (CEXIM), more than Rs 13,000 crore, BloombergQuint reported in November.

The new debt resolution plan provided by Ambani is not very different from the previous one, and is just a way of “kicking the can down the road”, Nitin Soni, director at Fitch Ratings, told BloombergQuint in an interaction. “I am also not really sure who is going to buy their assets,” he said.

RCom has had a “long standing problem” of coming up with resolution plans followed by patchy implementation, according to him. This has been going on for the last two years and has prompted Fitch to suspend its coverage on the company, he added.

A ‘New’ RCom

Ambani in the press briefing said the company is already undergoing a ‘robust’ transformation to a business-business services company. The new RCom will consist of enterprise, GCX, the data center business and the 4G sharing business. 50 percent of its revenue will come from overseas operation, Ambani said. Even in this business, the group is in the middle of bringing in a strategic investor at an enterprise value of Rs 15,000 crore, Ambani said. He added that nine non binding bids have been received from ‘global strategics.’

The new company will have debt of Rs 6,000 crore, he added.

Shares of RCom rose as much as 35 percent after the announcement to the highest in more than four years. The stock has fallen 36 percent so far in 2017.

The company has already decided to shut its 2G wireless business and merge its 4G services with its enterprise unit.

RCom owns 262 megahertz of airwaves across four bands, including the 800 MHz frequency that is used to offer 4G services. About a third of its holdings are administered - in the 1,800 MHz band - or allocated without bidding and can’t be used for 3G and 4G services.

RCom To Exit Debt Recast Plan With Zero Write-Offs To Lenders

The Story So Far

The Anil Ambani-led firm has been looking to sell assets to help restructure and reduce debt on its books. In June, when the company and its domestic lenders agreed to invoke SDR, the company was in discussions to merge its wireless business with Aircel Ltd. and sell stake in its mobile towers business to Canadian investor Brookfield Infrastructure. Neither of the deals went through.

Trouble mounted after shares of Reliance Communications fell below the agreed conversion price of Rs 24.71 per share. This meant that lenders would take a hit immediately upon conversion. The deadline for the conversion ended in December.

In November, Reliance Communications defaulted on its outstanding Dollar bonds - the first such default by an Indian company in 15 months. The same month, China Development Bank filed an insolvency plea against the company. Operational creditors, including Ericsson and Manipal Technologies, have also filed insolvency pleas.

Reliance Communications latest plan to sell assets comes atop of deals previously announced. In November, the company sold its direct-to-home subsidiary, Reliance BIG TV, to Veecon Media and Television Ltd. for an undisclosed amount.