RCom bond test tomorrow: Will bondholders take a haircut or move NCLT?

RCom bonds are already trading at a 60% discount, at 40.1 cents to a dollar in foreign markets

Reliance Communications (RCom) will offer to settle dues worth $300 million with its overseas bondholders in a meeting on Friday. Bondholders will have to either take a steep haircut on their investments or move the National Company Law Tribunal (NCLT), experts said. 

Bankers, however, feel the bondholders would prefer taking a haircut as moving the NCLT would derail the debt restructuring plan of RCom. “The offer is not good at all. But there are no better options,” said a banker, asking not to be named.

RCom bonds are already trading at a 60 per cent discount, at 40.1 cents to a dollar in foreign markets (see chart).

Indian lenders are also waiting for the outcome of Friday’s meeting. According to inter-conditional agreements between banks, local lenders can agree to RCom’s restructuring only if the dollar bonds are also restructured.

Since June 2017, RCom has been unable to repay its debt, which touched Rs 447 billion as of March 2017. The Anil Ambani-led RCom, like some other marginal telecom players, had to exit the sector after big brother Mukesh Ambani’s venture, Reliance Jio, unleashed a price war with its entry.

In June last year, lenders to RCom agreed not to take any dues on principal and interest till December 2018 under a strategic debt restructuring (SDR) programme. 
 

On December 27, RCom announced it had exited the SDR programme by agreeing to sell its telecom assets to Jio for Rs 181 billion. 

Indian lenders gave permission to RCom for the sale after Anil Ambani, the firm’s chairman, promised the proceeds would be used to repay their debt. 

But the settlement terms between the lenders and RCom were objected to by Swedish firm Ericsson, which had supplied equipment to RCom but was not paid. It moved NCLT Mumbai, which initiated insolvency proceedings and ordered RCom to pay Rs 5.5 billion to Ericsson by September this year. 

RCom then moved the National Company Law Appellate Tribunal, which stayed the bankruptcy proceedings but asked it to pay the dues to Ericsson by end of September or have the sale of the assets reversed. RCom still moved a special leave petition at the Supreme Court. But a two-judge Bench also asked the firm to pay Rs 5.5 billion to Ericsson by October 1 and give an undertaking that the money would be paid before the deadline.

Indian lenders are sitting on a mountain of bad debts, worth almost $210 billion, which has led to massive write offs and fund infusion from the government. Recently, Life Insurance Corporation had to invest Rs 94 billion in IDBI Bank for the lender to meet its financial requirements. The RBI came out with a list of 28 assets to be sent to the NCLT, but progress in the cases has been slow due to litigation and continuous changes in the Insolvency and Bankruptcy Code.