Reliance Communications Ltd., the Indian mobile phone operator that defaulted on dollar bonds last week in the highest-profile debt failure since the country’s new bankruptcy code was passed, faces risks of insolvency if it can’t sell its assets at high enough valuations, according to SC Lowy Financial HK Ltd. “We think the valuations they have provided are optimistic,” said Mihir Chandra, head analyst at the loan and bond trading firm. “If they can’t sell assets at the valuations that they’ve guided to, then the more likely outcome is an insolvency process.”
The embattled firm controlled by billionaire Anil Ambani plans to repay debt of as much as 270 billion rupees ($4.15 billion) through the sale of assets and land, it said last month. It has received expressions of interest from domestic and international telecom and private equity players for various assets, including spectrum, towers and real estate, and the monetization of its assets are at an “advanced stage” the company said on Nov. 11. A Reliance Communications spokesman said he would check and reply if there were any comment.
Reliance Communications’ stock price slump also puts the plan to convert a portion of lenders’ debt to equity at risk, according to SC Lowy. The firm’s stock has fallen 65 percent this year to 11.9 rupees on Monday. “The proposed conversion price is about 24.8 rupees a share, which is twice the stock’s current trading level,” said Chandra. “It’s unclear if the banks are going to agree to the proposed conversion price, and if they don’t come to an agreement, there’s a chance it sort of all falls apart.”
Ericsson India Private Ltd., one of the firm’s creditors, has filed a petition to put Reliance Communications into the insolvency process and India’s National Company Law Tribunal has deferred the hearing for the case to Nov. 23.