BackHalf of RCom’s spectrum in two bands set to expire in 2021: CLSA
The failure of RCom-Aircel merger deal exposes Reliance Communications to spectrum renewal risk, particularly in the 1,800 MHz band, while high debt will limit its ability to buy back spectrum in auctions in 2021, says a CLSA report
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New Delhi: Reliance Communications Ltd (RCom)’s plan to monetize its spectrum assets and pare debt has little chance of succeeding as about 50% of the company’s 800MHz and 1800MHz spectrum is set to expire in 2021.
The Anil Ambani-controlled company on Monday said that it plans to adopt a 4G-focused policy, enabling it to monetize its 2G and 3G spectrum. The new strategy was articulated after the company’s planned merger of its wireless business with Aircel Ltd collapsed. RCom’s 2G subscribers are now on the 900/1800 MHz bands and its 4G subscribers are on the 800 MHz band.
RCom’s contribution from 800 MHz and 1800 MHz bands will fall after 2021, CLSA Research said in a note to investors on 3 October. “Calling off the deal with Aircel exposes RCom to renewal risk particularly in the 1800MHz band... High leverage will limit RCom’s ability to buy back spectrum in auctions in 2021. This could drive a sharp drop in its 2G revenue coverage and potentially hit revenue," it said.
RCom did not respond to a questionnaire sent on Tuesday.
CLSA further said that RCom’s mobile operations continue to slip in execution with an 80 basis point revenue market share loss in the last six months alone, and 11 percentage points from its peak to a mere 3% now. A basis point is one-hundredth of a percentage point.
“RCom’s market share decline adds significant risk to our forecast," CLSA said, adding that it will retain a “sell" rating on the company’s stock. RCom shares plunged nearly 11% on Tuesday to close at a record-low of Rs17.10 on BSE, while the benchmark Sensex rose 0.68% to end the day at 31,497.38 points.
“Early execution of deleveraging transactions could lower debt and drive a re-rating. Market share gains on the back of spectrum sharing arrangement with Reliance Jio could provide upsides," CLSA said.
Apart from plans to monetize 2G and 3G spectrum to pare debt, RCom has also put on sale real estate assets in Hyderabad, Chennai and Navi Mumbai, apart from its corporate office in Delhi and the Dhirubhai Ambani Knowledge City in Navi Mumbai.
ALSO READ: RCom readies for fire sale of its assets to pare debt, as Aircel merger fails
The moves, if successful, will pare debt significantly and bring relief to the company, which has been negotiating loan repayment terms with creditors. RCom is weighed down by Rs45,000 crore of debt.
The company is in a standstill agreement with lenders on the back of a strategic debt restructuring (SDR) initiative.
“With the Aircel deal off, RCom’s debt resolution plans have received a setback. Lenders have the right to convert debt under the SDR guidelines, and RCom, in the recent AGM, approved the issuance of equity shares to lenders," CLSA said.
Sale of the real estate assets, for which the firm has received interest from Indian as well as global firms, will fetch Rs11,000 crore in total. A telecom tower deal with Brookfield Infrastructure Group could also fetch RCom about Rs11,000 crore. This, however, is subject to a new valuation of the tower assets, given that Aircel’s tenancies will not be included in the deal anymore.
RCom is still pursuing the tower sale deal to Brookfield, although the valuation will be under review. According to RCom’s proposed tower deal, the company was to sell a 51% economic interest and 100% voting rights of the tower assets to Brookfield.
“But the valuation was also based on the combined Aircel-RCom entity offering tenancies post-merger to the tower company. With the RCom-Aircel merger now off, the tower deal valuation will be impacted," CLSA said.
Reliance Group companies have sued HT Media Ltd, Mint’s publisher, and nine others in the Bombay high court over a 2 October 2014 front-page story that they have disputed. HT Media is contesting the case.
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