RCom shares in free fall, management tries to reassure investors
The management assurance came on a day the RCom stock fell 20.5% to Rs20.50, a record low, after investors grew jittery about its debt repayment ability
Mumbai: Reliance Communication Ltd (RCom) is seeking approvals from its bankers to sell its telecom towers business and merge its wireless business with Aircel Ltd, steps which will allow the company to pare debt, its management said in an investor call on Monday. These deals are likely to be completed by September, and RCom has sought refinancing for some of its debt in the interim, said Gurdeep Singh, chief executive officer of the wireless business.
The management assurance came on a day the RCom stock fell 20.5% to Rs20.50, a record low, after investors grew jittery about its debt repayment ability.
“RCom has formally advised all its lenders that it will be making repayment of an aggregate amount of Rs25,000 crore from proceeds of these two transactions on or before September 30. The paid amount will cover not only all scheduled repayments, but also include substantial prepayments to all lenders on a pro rata basis," the management said during the investor call.
The sale of RCom’s tower assets to Brookfield Asset Management Group will yield Rs11,000 crore while the company expects to transfer Rs14,000 of debt to the merged entity.
RCom had debt of Rs47,332 crore on its books at the end of March, compared to Rs39,828 crore a year ago.
“The Brookfield deal is critical for debt servicing," said an analyst with a credit rating agency on condition of anonymity. “Given the current financials, even managing short-term cash looks difficult without any external cash infusion. Till the end of the third quarter, the company somewhat managed repayments, but now it looks difficult because there is hardly any cash accrual given the Jio onslaught."
The firm had reported its first fiscal year loss on Saturday as competition from new entrant Reliance Jio Infocomm Ltd, which offered free calls and data as part of its September launch, hurt the entire telecom industry.
RCom generated just enough operating profits to cover its interest payment in the March quarter. Its net debt to earnings before interest, tax, depreciation and amortization (Ebitda) stood at 6.23 times.
Monday’s rout extended the loss of RCom’s stock this month to 40.6%. In Hong Kong, its $300 million junk-rated note due in 2020 declined as much as 13.9 cents on the dollar to 70.1 cents on Monday, Bloomberg reported.
The Economic Times reported on Monday that at least 10 lenders had categorised RCom debt as special mention accounts (overdue between 30-90 days). Some of the lenders will have to treat the account as non-performing asset after a fortnight, the report said.
“We will wait for 10 days before saying with any certainty whether the company will slip into a non-performing asset (NPA)," said a senior banker with a large public sector bank on condition of anonymity. “We expect the company to make short-term arrangements to repay lenders as it’s a matter of reputational risk."
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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