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With the bulk of its wireless telephony business shutting down, Anil Ambani-owned Reliance Communications (RCom) on Monday skipped interest payment to its bond holders. The company didn’t pay the interest, of about $9.75 million due on Monday, on its $300-million bonds that will mature in 2020. In a statement to the stock exchanges, RCom said, “For the time being, no payment of interest and/or principal is being made to any lenders and/or bond holders of RCom.” The company has entered into a standstill agreement till December 2018 with its lenders. RCom owes Rs 44,700 crore to Indian banks and had entered the strategic debt restructuring (SDR) scheme of Indian banks in June this year. The firm’s earnings slumped after cash-rich Reliance Jio Infocomm, backed by Mukesh Ambani, offered free calls and data plans last year. Amid a price war, the industry has faced consolidation and smaller players such as Tata Teleservices and Reliance Communications shut down wireless telephony businesses and are being forced to restructure borrowings and sell assets. The $300-million bonds will mature in 2020.
The price on the securities has plummeted to about 40.7 cents, from more than 100 cents just six months ago.While the coupon is relatively small and could be covered by Reliance Communications, the risk of a “non-timely payment” and the firm’s smaller business scale could keep the valuations on its bonds under pressure, according to a Barclays Plc note dated October 31. There are also execution risks to the company’s debt resolution plan, it added.