Addressing a packed hall of shareholders at Reliance Communications’ (RCom’s) sixth annual general meeting, Chairman Anil Ambani assured them that the company plans to reduce the mounting debt of the telecom major.
“A combination of strategic and financial initiatives would result in a large cash infusion and significantly bring down debt levels in the next few quarters. Indeed, they could potentially make us debt-free in three years or so,” said Ambani.
RCom currently has a total debt of around Rs 33,000 crore. The company’s debt is around four times its earnings before interest, taxes, depreciation and amortisation (Ebitda), raising concerns among investors as well as stock analysts.
Stake sale, tower IPO on the cards
RCom has taken enabling resolutions from shareholders, allowing various equity-raising methods, like a qualified institutional placement (QIP). It is also pursuing a 26 per cent stake sale in the company to financial and strategic investors.
“There is substantial interest in the market for such an offering, given that we are now the only telecom operator in the country without a foreign partner,” said Ambani.
RCom is also in discussions with investors to unlock value in its tower subsidiary, Reliance Infratel. “The transaction structure of a such a deal will comprise a combination of cash and stock. We also have the possibility, if considered appropriate, of combining such a transaction with a possible initial public offer, for which the necessary approval from Sebi (Securities and Exchange Board of India) has already been received,” Ambani said.
The company had signed a deal to merge its tower business with an independent tower company, GTL Infra. However, earlier this month, both companies called off the deal.
Low capex from now on
Even as the company spent around Rs 60,000 crore to acquire 3G spectrum licences in 13 circles, it would have very low capex spends for sometime. Its network has already been upgraded to provide 3G services. Hence, going forward, its capex investment would be around Rs 3,000 crore in the current year, a third of the annual investments made in the last few years. This trend of low capex could continue for the next few years.
In the past three years, the company spent around Rs 35,000 crore as capital expenditure. “That phase of high capital intensity is now well and truly behind us. Starting this year, our capex cycle will dip dramatically. This fall in capital intensity, together with rising free cash flows will allow us to substantially de-leverage over the next few quarters,” said Ambani.
RCom’s stock went up 0.41 per cent in Tuesday’s trade to close at Rs 170.30 a share on the BSE.