Mumbai: India’s second largest mobile telephone operator, Reliance Communications Ltd (RCom), plans to borrow Rs13,000 crore to fund its expansion and retire short-term debt, in a move a sector expert said, would help bolster its finances.
Credit rating agency Icra Ltd, said in a statement on Wednesday it had given its highest credit rating to two of RCom’s borrowing initiatives, but has also noted the company has been steadily accumulating debt, with its borrowings having increased 53% since March 2007.
Assigning LAAA rating to RCom’s Rs3000 crore non-convertible debentures as well as its Rs10,000 crore “proposed long-term fund-based facilities”, Icra said its ratings factored in RCom’s integrated services “spanning wireless services, wire-line services, enterprise connectivity solutions, domestic and international long distance segments” and the “significant operational and cost synergies” it could garner by sharing infrastructure between its CDMA (code division multiple access) and GSM (global system for mobile communications) networks.
RCom launched its GSM service—used by three in every four mobile phone subscribers in India—in 14 circles in December and added a record five million customers by 31 January, taking its total subscriber base to 66.3 million. “Most of us are very concerned about RCom’s debt levels, especially when it has huge capex (capital expenditure) lined up along with current liabilities of Rs27,000 crore. It will be a positive for the company if it can raise the money at reasonable interest rates,” said a Mumbai-based analyst tracking the company in a domestic brokerage firm.
The company intends to use this fresh long-term borrowing to fund its GSM roll-out and expansion in global communications business services, clubbed under its umbrella brand Reliance Globalcom, besides paying off a part of its borrowings. RCom’s debt levels have risen from Rs17,440 crore on 31 March 2007 to Rs25,820 crore by March 2008 and to Rs26,670 crore by December-end. With a significant part of this debt in foreign currency, the rating agency noted that “adverse movements in currency rates have affected its financial profile”.
A company spokesperson declined to specify the amount of short-term debt that will be paid off but said the fund-raising exercise was in line with the company’s capex guidance.
The Anil Ambani-owned company has liquid and cash balances of around Rs8,000 crore and had recently told analysts after its third quarter results that it will spend Rs25,000 crore this fiscal and Rs15,000 crore in 2009-10.