RCom shares, bonds fall after Ericsson’s insolvency petition
Mumbai: Shares in Indian telecoms company Reliance Communications Ltd extended losses on Thursday, falling nearly 3%, a day after the local arm of Sweden’s Ericsson filed a plea with an insolvency court against Reliance Communications.
Ericsson, which signed a seven-year deal in 2014 to operate and manage Reliance Communications’ nationwide network, is seeking a total of Rs1,155 crore ($180 million) from the company and two of its subsidiaries.
Reliance Communications, widely known as RCom, reported its third quarterly loss in a row last month and is trying to find ways to cut its debt after lenders gave it a reprieve on loan repayments until the end of 2017.
The company, controlled by Anil Ambani, has been hit by free voice and cut-price data plans offered by the mobile market’s newest entrant, Reliance Jio Infocomm, the network operator backed by Ambani’s older brother and India’s richest man, Mukesh.
RCom bonds also fell in early trade, with its 6.5% bonds due 2020 indicated at 55/60 cents on the dollar, down from an earlier 57/62 cents.
“This seems like the first salvo has been fired but Ericsson is unlikely to push RCom to bankruptcy,” said a Hong Kong-based trader.
Ericsson is protecting its own interests and this could open the door for negotiation later, “but I do expect some selling, particularly from private banking bondholders,” the trader said.
The bonds were indicated at 57/60 in late afternoon trading on Thursday, while shares in RCom also pared losses to close 0.9% down at Rs21.55.
RCom shares fell 4% on Wednesday after local media reports said Ericsson had filed an insolvency petition.
RCom’s net debt stood at Rs44,345 crore ($6.92 billion) at the end of March. It hopes to reduce that figure by Rs25,000 crore by merging its wireless business with rival Aircel and by selling a stake in its mobile masts arm to a unit of Canada’s Brookfield Asset Management.
Chairman Anil Ambani said earlier this year that the company hopes to close both deals by the end of September.
However, some investors remain pessimistic about the company’s prospects and RCom’s share price is unlikely to recover until such issues are resolved, said Gaurang Shah, head investment strategist at Geojit Financial Services.
Ericsson was part of a group that had earlier objected to the RCom-Aircel deal, but India’s National Company Law Tribunal (NCLT) ruled in August that Ericsson had no grounds to object as its claims on RCom amounted to less than 5% of the company’s total debts.
It is unclear whether the new petition could derail RCom’s two pending deals.
Rcom could also seek support from Mukesh Ambani’s Jio. RCom shares airwaves, towers and fibre with Jio and Anil Ambani had said last year the two companies had already achieved a “virtual merger.”
RCom lawyer Janak Dwarkadas was quoted on Thursday by the Economic Times as saying Ericsson and RCom “are in talks to settle the matter out of court before 26 September,” when the matter is due to come before the NCLT. Reuters
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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