Reliance Communications Ltd., the Indian mobile phone operator controlled by billionaire Anil Ambani, faces a bond coupon deadline Monday after temporarily halting payments to lenders. The interest payment of about $9.75 million is the latest test for the debt-laden company, which has faced a series of setbacks amid a shakeout in the world’s second-largest telecom market. It announced last month the collapse of its merger plans with rival Aircel Ltd., a deal which could have helped it pare debt and better compete with rivals. The mobile carrier, whose customer base of about 75 million people is dwarfed by Idea Cellular Ltd. and Bharti Airtel Ltd., proposed earlier this week that lenders convert 70 billion rupees ($1.1 billion) of debt into equity. In the past month, it also withdrew a regulatory document seeking a nod to sell its towers and faced another insolvency petition. The flagship company of the Reliance Group is in a so-called standstill period with its lenders, and isn’t paying interest and principal on loans until December 2018. “The upcoming coupon on the bond is uncertain, given the continuing standstill agreement with local banks, recent developments around assets sales, and the new debt recast plan involving partial conversion to equity,” said Abhishek Rawat, a director at China Merchants Securities Investment Management (HK) Co.
A Reliance Communications spokesman said in response to emailed questions that he would reply on hearing back from management. The firm’s earnings slumped after deep-pocketed Reliance Jio Infocomm Ltd., backed by India’s richest man and Ambani’s older brother Mukesh, offered free calls and data plans last year. Amid a price war, the industry has faced consolidation and smaller players like Tata Teleservices Ltd. and Reliance Communications are being forced to restructure borrowings and sell assets. Amid fierce competition, the firm has retreated. Reliance Communications said Oct. 25 that it’ll cut back its second- and third-generation wireless networks from Nov. 30, a move that’s expected to reduce the value of towers the company owns.
The company said earlier this week that as much as 270 billion rupees of debt could be repaid by selling assets. It had net debt of 443.45 billion rupees, compared with cash and equivalents of 4.55 billion rupees as of March 31, according to its annual report. The $300 million of bonds on which the firm must pay the semi-annual coupon Monday mature in 2020. The price on the securities has plummeted to about 40.5 cents on the dollar, near a record low, from more than 100 cents just six months ago.
While the coupon is relatively small and could be covered by Reliance Communications, the risk of a “non-timely payment” and the firm’s smaller business scale could keep the valuations on its bonds under pressure, according to a Barclays Plc note dated Oct. 31. The mobile carrier delayed payments on local notes earlier this year. Fitch Ratings cut its credit score to “restricted default” in June and said that multiple waivers or forbearance periods had been extended following a non-payment event.