RCom: Will the monetisation plan work?

Anil-Ambani led Reliance Communications' offer to lenders to take control of the company by converting Rs 7,100 crore of its debt into a 51 per cent equity stake is perhaps the telecom major's best bet. If the latest rescue attempt goes through, lenders led by SBI will hold at least 51 per cent in the telco and promoters stake will be halved to around 26 per cent.

RCom has said it will get about Rs 17,000 crore by monetising its assets. The plan includes selling its tower business, fibre network, and media convergence nodes and it will estimates another Rs 10,000 crore through real estate sales in eight cities. Post debt monetisation, the company said it would have only Rs 6,000 crore of debt left. Moreover, another Rs 4,000 crore taken from unsecured creditors like Ericsson needs to be negotiated with. 

So how prudent is this monetisation plan?

Under its earlier plan, RCom had said it would cut its debt by half by December through a merger with Aircel and sale of majority stake in its tower business to Canada-based investment firm Brookfield Infrastructure for Rs 11,000 crore, valuing the business at Rs 20,000 crore. However, now that the Aircel deal is off and RCom shutting down its 2G business,  which constitutes for a bulk of its subscribers, the deal valuation is likely to be revised downwards. In essence, the telecom tower deal is subject to a new valuation given that Aircel’s tenancies will not be included in the deal anymore. Moreover, RCom now runs the risk of losing at least half of its 2G subscribers.

Analysts say that even if RCom sells the entire 100 per cent stake in its 43,600 tower assets to Brookfield it should get around Rs 8,000 crore, though some say it could be more. 

RCom is hoping that it will be able to rake in Rs 14,000 crore from its spectrum sale though the value of the spectrum is Rs 26,000 crore, which includes spectrum it got from the merger of MTS. However, analysts are of the view that there is already a huge oversupply of spectrum, and that the paper price might not be reflected in reality. So RCom's assessment that it will at least get half the value might be prudent, though some argue that the trend in previous sales have not been very encouraging as Telenor and TTSL which gave their spectrum virtually free to Bharti Airtel. 

RCom has also talked about monetising its real estate but considering the fact that the market is very slow it could be a challenge. RCom has been trying to sell its prime real estate for over three years in Delhi now but has found few takers for the right price and surely it has no intention to sell it at lower than the market price. But despite these challenges, waiting to restructure the debt till 2018 end would have been too late for the company.  

The company has already closed down its 2G business and it has only 13 million customers who use wireless broadband for which running a pan-India network does not make any sense. Any further delay in calling the quits would only depreciate the value of its asset, especially the value of spectrum and towers. For instance, the tower business is already consolidating with more than five to six sellers and only two to three buyers in the market. Moreover, the telecom market is now shrinking to an inevitable oligopoly. While some companies have merged to face the onslaught of RJio, several others have shut shop. Clearly, now is the best time to sell the fibre optic network, which is being used extensively by Reliance Jio.  There is a huge demand for it from competing telcos that are putting together their aggressive plans for data explosion as well as 5G.