RCom’s ‘non-core’ assets like GCX may become key focus area after restructuring: Moody’s

Reliance Communications’ ‘non-core’ assets originally identified for disposal like GCX will become the telco’s key business focus following the planned de-merger and tower sale, ratings agency Moody’s said on Wednesday.

The agency has also downgraded RCom’s corporate family rating and senior secured bond rating to B1 from Ba3, due to the telco’s weak operating performance in the first half of the fiscal year, as evidenced by the continued contraction in profitability through the second quarter – primarily at its Indian operations.

The agency said that RCom’s ratings remain under review for further downgrade, given the two material transactions that the telco announced will likely result in a structural reorganization across the group and a recalibration of the credit risk for bondholders.

“With the planned de-merger and tower sale, some of the ‘non-core’ assets originally identified for disposal like GCX will become RCom’s key business focus,” Annalisa Di Chiara, a Moody’s Vice President and Senior Credit Officer, said.

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RCom had in September announced the de-merger of its wireless business and its combination with Aircel, the wireless business of Maxis Communications Berhad, into a new a new joint venture equally owned by RCom and MCB. This was followed by a non-binding agreement for the sale of 100% its tower assets and related infrastructure to Brookfield Infrastructure Group for Rs 110 billion or $1.6billion.

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While the expected reduction in debt achieved from these two transactions will be credit positive, it will take 6-9 months for both transactions to close, the agency said.

“Moreover, this is a material shift with respect to business focus, scale and growth strategy — key factors that affect the credit profile of the company and credit risk for bondholders,” Moody’s said.

Post restructuring, the Anil Ambani-led telco will transform from India’s fourth largest wireless telco into a company focused on the B2B segment and providing retail and wholesale data connectivity, as well as internet networks and services. It will also lease its submarine cable infrastructure – owned and operated by its 100% owned subsidiary, GCX Limited (B2 stable) – and metropolitan city networks.

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