A consortium of lenders to the loss-making Reliance Communications has given the beleaguered telco seven months to pare debt and service loans regularly, RCom chairman Anil Ambani told a media conference on Friday. The company, with a huge net debt of Rs 45,000 crore, reported a net loss of Rs 948 crore in Q4FY17. The breather is part of a strategic debt restructuring (SDR) scheme, by which lenders can convert loans into equity after seven months. Ambani said the company hoped to pare loans by Rs 25,000 crore by end-September but had nevertheless sought more time to do so.
The company expects the sale of its towers business to fetch Rs 11,000 crore. Another Rs 14,000 crore is to be transferred to the proposed joint venture between RCom and Aircel. Banks are yet to approve the transfer of the Rs 14,000 crore of loans from the books of RCom to the planned joint venture.
RCom reported a loss of Rs 1,283 crore in 2016-17, paying interest expenses of Rs 3,561 crore, and has been subject to a spate of downgrades by ratings agencies over the last 10 days. Ratings were lowered following delayed interest and principal payments on non-convertible debentures. On Thursday, Fitch, while lowering the rating, had observed that a default was a real possibility.
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Prior to that, on Tuesday, Moody’s had downgraded the firm’s corporate family rating and senior secured bond rating on account of weak performance and a “fragile” liquidity position. Earlier, both CARE and Icra had lowered their ratings.
Bloomberg reported earlier in the week the company’s debt-equity ratio stood at 1.61 times on March 31 versus 1.39 a year ago. The interest coverage ratio fell to 1.84 times from 3.3 times a year ago. The firm’s gross debt stood at Rs 45,000 crore in FY17, of which Rs 25,000 crore is owed to domestic lenders.
Bloomberg also reported that the telecom company had classified Rs 22,550 crore ($3.5 billion) of borrowings as non-current liabilities as of March, 31 pending formal confirmation by lenders for waivers on certain loan covenants, according to notes from its earnings results published on May 27.
By opting for the SDR scheme, lenders can retain the current classification for the exposure — and not have to term it a non-performing asset (NPA) — for seven months. Lenders have 210 days from the date the SDR is initiated to convert the debt into equity, after which it will turn into an NPA. After this, lenders have another 11 months to find a buyer for the asset.
An SDR allows banks to convert debt at a price below the prevailing market value and to hold a stake of 51% in the company. In the case of unlisted companies, a break-up value should be used which is the book value per share calculated from the company’s balance sheet adjusted for cash flows and financials post the earlier restructuring. According to the Reserve Bank of India, in case the latest balance sheet is not available then the break-up value shall be Re 1.