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Pressure on RCom to close asset deals critical to its debt reduction

This comes on the back of debt reprieve it got from lenders a few days ago

Reuters  |  Mumbai 

Reliance Communications Chairman Anil Ambani
Reliance Communications Chairman Anil Ambani

Mobile carrier Communications (RCom) won breathing room after receiving a seven-month loan reprieve from lenders, but will now need to reassure investors it can accomplish two deals critical to reducing its

Billionaire Anil Ambani, who controls India's seventh-ranked mobile carrier by customers, said on Friday it will receive a "standstill" on servicing obligations until December as it works on the deals that it expects will reduce its $7 billion by Rs 25,000 ($3.9 billion), or by 60 per cent.

The announcement sent shares in RCom, as the company is widely known, up as much as 4.6 per cent on Monday, as investors now await progress on the merger of its wireless division with rival Aircel and the sale of a stake in its mobile towers business by end-September.

Failure to clinch those deals by the end of the year could see lenders force through a restructuring or convert their to equity under India's strategic restructuring (SDR) rules that can be applied to companies that default on loans.

Gaurang Shah, head investment strategist at Geojit Financial Services, said he was not convinced the reprieve would mark a turnaround in RCom's fortunes in a tough telecom sector increasingly controlled by bigger players.

"We're yet to see whether they'll be able to sell the tower business and what they plan to do with Aircel," he said. "Even if they're able to do these two, there is on their balance sheet.

"There wasn't any clarity on how they're going to revive their business," he added. "Telecom is one of the most difficult businesses in India."

Shares in were trading up 1.9 per cent by 08:23 GMT. Bonds due 2020 were a quarter point higher at 69/72 cents on the dollar.

The share recovery comes after slumped 19.8 per cent last week to record lows, its worst weekly performance since October 2009, after posting its first ever annual loss and experiencing credit rating downgrades.

"This now buys a few more months of time for the planned reduction, but a large amount of will have to be supported by remaining businesses and the structural position of bonds looks unfavourable," said Rick Mattila, head of market strategy at MUFG Securities in Hong Kong.

Securing Approvals

is in the midst of securing approvals necessary to complete the two deals, including from lenders and the (NCLT), which handles corporate matters such as mergers.

The government's telecoms ministry would also need to approve its planned merger with Aircel.

Lenders are already moving to take more stringent action should the carrier fail to deliver.

A consortium led by (SBI) agreed in principle on Friday to force through a restructuring under SDR guidelines if needed, said bankers with direct knowledge of the matter.

The plan will be formally approved in a month, and bankers will wait until the end of the year before deciding whether to take majority control in by swapping part of their into equity and forcing a change in management, the bankers said. has a market value of about $814 million now.

An spokesman did not respond to a request for comment.

said on Friday banks may exercise the right to convert to equity if the two transactions are not completed within the deadline.

Even if accomplishes the deals, it will still be left with about 200 billion rupees of at a time when the sector's profits are under threat from a price war triggered by the arrival last year of Jio Infocomm Ltd, run by Anil's elder brother Mukesh Ambani.

said on Friday they had options, including a deal for an undersea cable unit, to further cut