Reliance Communications Gets Time Till December To Repay Debt

Reliance Communications Ltd. said lenders have given it seven months to repay loans after rating agencies downgraded the telecom operator's debt to default.

The indebted company is confident of reducing its Rs 45,733-crore gross debt by more than half by September through a planned merger with Aircel and the sale of tower assets, Anil Ambani, chairman of Reliance Communications, said at a press conference in Mumbai. The telecom operator plans to sell 51 percent of its towers to Brookfield Asset management.

Earlier on Friday, a consortium of 22 lenders of Reliance Communications met and decided to invoke strategic debt restructuring, a mechanism which allows them to convert debt into equity. Their worries stem from the company's delayed payments on non-convertible debentures, which led to rating downgrades. CARE Ratings Ltd. and ICRA Ltd. pegged the company's debt at ‘default'. Their global peer Fitch Ratings warned of a possible default while Moody's Investor Services downgraded the company.

Also Read: Everything You Need To Know About Reliance Communications' Default Rating

Ambani said that during the seven-month standstill, no debt would be converted to equity. “Everything that lenders want achieve, we are achieving without any additional provisioning or haircuts,” he said.

The telecom operator will look to deleverage further, according to Punit Garg, chief executive officer of the company's India enterprise business.

The options for deleveraging include selling more stake in its core business, including up to 50 percent in AirCom, the proposed entity through a merger with Aircel. Selling the remaining stake in the tower business has also not been ruled out. Ancillary businesses like the direct-to-home arm and land bank in Navi Mumbai and Delhi may also be sold to pare debt further, Garg said.

The company also has the option of a strategic sale of its global business, but Ambani said that it would not come to that point.

Telecom operators in a “hyper-competitive” market were compelled to match the unlimited free voice and low data tariffs of Anil's elder brother Mukesh Ambani-backed Reliance Jio Infocomm Ltd., according to Garg. “This resulted in steep declines in both voice and data tariffs and realizations,” he said.

When asked how low the data prices could go, Ambani said it will depend on each operator, their capital costs, and their desires.

Ambani defended the telecom industry's price cuts saying they were not irrational. The operators were only responding to market forces while cutting their tariffs, he said.