RCom to Significantly Scale Down Operations Due to Intense Competition: Fitch

Reliance Communications will exit from the wireless voice business, and is expected to scale down its operations due to intense competition significantly, rating firm Fitch Ratings said on Wednesday.

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Amid reports of operations closure, the Anil Ambani-led telecom operator announced that it will focus on offering 4G services as a mobile virtual network operator after selling its spectrum assets, following its move to call off a plan to merge its wireless operations with Aircel Ltd, owned by Malaysia’s Maxis Berhad, citing regulatory and competitive reasons.

“We expect Rcom to gradually exit from the wireless voice business and significantly scale down its operations due to intense competition,” Fitch said in a report.

RCom on Monday has come up with a comprehensive debt resolution plan to its domestic and foreign Lenders. Under the plan, the telco said that it would pay off up to Rs. 17,000 crore of its debt, out of the proceeds of monetisation of Spectrum, Towers and Fiber and MCN (Media Convergence Nodes) assets. RCom will pay additional Rs. 10,000 Crore of its debt, out of the proceeds of sales and commercial development of DAKC and other prime real estate assets across 8-metros.

Rcom said that its plan to sell 51% stake in its tower operation to Canadian pension fund Brookfield for Rs 110 billion may now fetch lower value because it plans to shrink its wireless business and the absence of merger with Aircel.

“We expect the restructuring to transform RCom from an integrated telecom company to a business-to-business bandwidth services provider with three segments – GCX, enterprise and data centre business. However, the post-restructuring Rcom will not benefit from GCX’s cash flows, which are largely ring-fenced under its $350 million senior secured bond documents,” Fitch said.

Fitch said that it expects GCX’s end-September 2017 cash balance to fall closer to $40 million – the threshold below which we will consider adverse rating action. “We expect its indefeasible right of usage sales to be below $25 million during the six months ended September 2017 – lagging management’s expectations of $64 million for the full year to 31 March 2018. GCX’s undrawn revolving credit facility of USD30 million has lapsed. Its only debt is the $350 million bond, which is due in August 2019 and the next coupon payment is due in February 2018,” it added.