Alarmed by share sell-off, banks look for ways to solve RCom's debt mess

Reliance Communications’ lenders have sought more information on its plan to reduce debt, in the wake of a slowing in cash flow and its shares and bonds being hit by a series of rating downgrades.

Those with equity exposure to the company have also sought the plan to manage its liquidity. Life Insurance Corporation, for instance, owns a 6.5 per cent stake.  

Bankers said with the company becoming a ‘Special Mention Account’ after failing to pay its debt instalment on time, they’d be monitoring the financial health. The meeting is being called after the recent sell-off in the company’s shares and bonds which has erased equity investors’ wealth worth Rs 3,600 crore in the past two weeks. 

The RCom stock closed flat at Rs 20 a share on Wednesday after falling eight per cent in intra-day trade. The bonds listed overseas are due for payment in 2020 and have lost a third of their value since the sell-off began two weeks ago.

RCom had earlier said it would sell its 130-acre campus near Mumbai and the Reliance Centre in Delhi over the next one to two years to repay loans. It has started a valuation exercise for the two properties. The Delhi one, earlier known as Hotel Ranjit, will be sold first. The lenders want the company to expedite the process — debt shot up to Rs 45,744 crore as of end-March this year and it made an annual loss of Rs 1,283 crore, for the first time. 

The sell-off in RCom’s shares was despite the management’s assurance on Monday that it would reduce its debt by Rs 25,000 crore. This was to be done by selling its telecom towers to Canadian pension fund Brookfield for Rs 11,000 crore and transferring another Rs 14,000 crore of debt to a newly merged entity between its telecom services business and Aircel. RCom currently has cash and cash equivalent of Rs 1,020 crore. 

With the limited ability to generate free cash flow, rating agency Moody's said this would be insufficient to cover upcoming debt maturities without waivers from its lenders while the company pursued corporate restructuring. 

That restructuring, as noted, covers the sale of its telecom tower assets and demerger of its core wireless operations, which it was merge with Aircel in a new joint venture. The latter merger was hit after objections by China Development Bank, which sought clarity on how its own loans worth $1 billion would be repaid.  The matter is currently at the National Company Law Tribunal. 

RCom had told analysts on Monday that the sector's free cash flows were at a highly negative level. And, that there was a huge deficit in servicing of the fixed premium and deferred spectrum liabilities through operating earnings. The high level of total sector liabilities, at Rs 7.5 lakh crore, would be unsustainable if the current operating pressures continued.

The company is hoping the government will take quick policy action to improve the financial health of sector incumbents, down after the launch of Reliance Jio. The ministry of communications has set up an Inter-Ministerial Group on what to do about this. One option being discussed there is to ask lenders to increase the tenure of loans to 40 years.   

“It is critical that the government relooks at all the policy-driven components of the industry's cost structure. Some of the key recommendations by the industry, as well as Trai (Telecom Regulatory Authority of India), to the government include revamping of methodology for estimation of adjusted gross revenues for levying licence fee and  spectrum usage charge, loading of levies in the form of licence fee and spectrum usage  charges, increase in moratorium and durational instalments for payment of deferred spectrum obligation, and formulating a financing package for the sector,” the company had told analysts.