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

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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.


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.

Fitch said that the ratings on Reliance Communications and its wholly owned subsidiary Global Cloud Xchange would be unaffected by Rcom's debt restructuring plan. "We expect to re-rate Rcom once there is clarity on the execution of the sale of its assets and the capital structure of the reorganised entity. GCX's ratings are driven by its relatively weak trading position and its liquidity; reduction of its cash balance to below $40 million could lead to negative rating action," the agency said.

Unde the debt restructuring strategy, RCom plans to convert debt of Rs 70 billion into equity, sell spectrum, tower and fibre assets for Rs 170 billion, and sell real estate of Rs 100 billion.

RCom owns about 125 acres (50.5 hectares) of land in Dhirubhai Ambani Knowledge city (DAKC), in Mumbai, India and other real estate assets across eight cities in India. It plans to monetise spectrum assets in the 800MHz, 900MHz, 1800MHz and 2100MHz bands by sharing and trading with other Indian telcos, most likely Reliance Jio, which is owned by Reliance Industries Ltd (BBB-/Stable). Rcom also owns 43,000 towers and 178,000 route km of inter- and intra-city fibre optic cables.

RCom's lenders will convert Rs 70 billion of debt into equity and will invite a strategic investor to inject equity before the end of 2017 and manage the remaining businesses.

RCom continues to be in a standstill agreement with its lenders until end-2017. "We rate RCom's $300 million senior secured bond due 2020 at 'C' with Recovery Rating of 'RR4'. We believe that once lenders take more than 51% stake in RCom from the Anil Dhirubhai Ambani Group (ADAG), the change of control clause in the bond documents will be triggered and bondholders can accelerate the bond repayment," Fitch said.

ADAG group will retain about 26% of shareholding after the debt restructuring. "Rcom expects the debt-to-equity conversion to happen before the end of 2017, although lenders would require their respective boards' approvals to convert debt into equity," the agency added.

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Telecom Analyst

Passionately following the Indian #Telecom Industry for over a decade from Business, Consumer and a Technical perspective. My primary focus area is Consumer & Digital Experience.

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