Banks may seek forensic audit of RCom books, stock meltdown worries lenders

Banks are planning to insist on a forensic audit of Reliance Communications (RCom) before they take up a proposal for restructuring loans to the beleaguered telecom company.

“We may look at a forensic audit of the company’s books to get a better picture of the financial metrics over the years,” a banker said.

Alarmed by the continuous fall in the RCom stock price, bankers are meeting the company’s management next week to assess its debt-servicing capabilities.

The banker added that competition in the telecom sector had intensified with the launch of Reliance Jio. “Jio’s launch has a significant bearing on RCom’s revenue and financial profile. Keeping this in mind, a techno-economic study may become necessary so as to see whether it can meet its debt servicing obligations,” he said.

Another bank executive said the Anil Ambani group company, which had debts of Rs 45,733 crore, would require restructuring and would have to follow the process to assess the viability of its business.

RCom has been downgraded by almost all rating agencies after it announced last week that it had made a loss of Rs 1,283 crore. In March, its cash and equivalents were down to Rs 1,400 crore, insufficient to service short-term debt of Rs 10,900 crore.

*Net of goodwill
Sources: Investor presentation/Exchange /Capitaline
Compiled by BS Research Bureau

The company had earlier said it was hiving off its wireless telephony business, which would be merged with Aircel’s business in India. It also announced plans to sell its telecom towers business to Brookfield of Canada for Rs 11,000 crore. The two transactions will reduce its debt by Rs 25,000 crore, but the Aircel deal is held up by a case in the Supreme Court.

Due to its losses and uncertainty over asset sale plans, RCom’s stock and bonds listed overseas have lost half of their value in the past two weeks. In the past year, investors have lost Rs 7,093 crore as the RCom stock lost 58 per cent of its value.

Public sector banks are playing safe by seeking a forensic audit and vetting of the loan recast proposals by the oversight committee set up by the Reserve Bank of India. Bankers have become cautious after the arrest of top IDBI Bank executives  early this year for loan defaults by Kingfisher Airlines.

The crisis at RCom was set off by 10 banks categorising its loans as a special mention account, a prelude to reporting them as a non-performing asset.

The company is taking steps to stop the slide in investor confidence with chairman Anil Ambani expected to appear in a press conference on Friday. The company had earlier said it would sell its 130 acre campus near Mumbai and Reliance Centre in New Delhi in the next two years to repay loans. But the transactions are a few months away.

The company is also in talks with four potential buyers to sell a stake in its undersea cable unit Global Cloud Xchange (GCX). Talks have been on for the last 30 days involving two strategic and two financial investors.

A RCom spokesperson said if an offer was made, it would look at the proposal. But analysts said GCX had strict loan covenants that restricted upstreaming of cash to RCom. 

At current and forecast levels of gearing, according to Fitch analysts, GCX will not be able to provide cash to support RCom’s creditors.