)
The dollar bonds of Anil Ambani-controlled Reliance Communications and real estate developer Lodha Group were called off on Wednesday night, as these large fundraising plans failed to generate response among US-based investors due to poor market conditions and pricing issues.
Lodha was planning to raise $350 million, and Reliance Communication (RCom) $225 million from their debut US dollar bonds.
A large number of Indian companies, including Reliance and Essar Group, are raising funds abroad to take advantage of lower interest rates there.
RCom had launched its five-year bonds on Monday, with an initial price guidance in of about 6.5 per cent. A day later, Lodha had offered five-year bonds at a mid-high 10 per cent initial guidance.
| DIDN’T BOND WELL? |
|
Both deals struggled to gain traction and the companies even considered lowering the deal size, but investors did not accept tighter pricing on reduced bond sizes.
The funds are important for both companies. While RCom is grappling with high debt, unlisted Lodha Developers is facing the brunt of a weak real estate market.
“We have tied up alternative sources of funding and received in-principle approvals,” said a spokesperson for RCom.
Lodha Developers had appointed Bank of America Merrill Lynch and JPMorgan as bankers for the bonds, which were to be issued by its subsidiary Lodha Developers International (Mauritius), with Lodha Developers International Holdings and another subsidiary Palava Dwellers Pvt Ltd as guarantors.
Analysts had been raising caution levels on both companies. In a November 21 report, Morgan Stanley had said RCom was expected to underperform the Indian telecom sector, as its ratio of net debt to Ebitda (earnings before interest, tax, depreciation and amortization) was the highest in the industry. This pushed up its balance sheet risks.
The global brokerage firm had said the upside for RCom from unlocking value from fibre and towers was limited. Also, with Mukesh Ambani-controlled Reliance Industries’ Reliance Jio Infocomm, which would launch its services sometime early in 2015, tying up with other industry players as well, through sharing agreements, RCom’s exclusivity factor was removed.
Morgan Stanley further said the upside risk to RCom in unlocking value in towers and other assets through stake sale and/or signing deals with RIL or other operators and less-than-expected increase in network costs produced positive surprise in Ebitda margins and rate rise.
Among downside risks, Morgan Stanley said RCom might have significant regulatory payouts and face increased competition from Reliance Jio. Besides, RCom’s CDMA business continued to disappoint and reduced operating cash flows, it added. The agency referred to balance-sheet risks due to high debt and interest costs as another challenge.
Lodha, on the other hand, has been facing challenges in completing projects on time and in expanding at a time when demand has slowed.
Citibank on November 24 said residential demand had inched closer to a historic bottom, as residential absorption (area sold) in key cities of the country fell by 21 per cent on an annual basis. “While the decline in absolute terms is still substantial, the pace of demand decline has moderated over the past four quarters. Residential absorption fell substantially in the past two years and further, residential demand was flat in the September quarter of 2014-15. This suggests that after a brutal decline in 2013-14 and the June quarter of this year, the demand is closer to bottoming out,” Citibank said.
“The US-based investors have taken all these factors into account while rejecting the bond offers,” said a banker. “The timing of the bonds was not right.”
