Reliance Com looks to fund spectrum payment via overseas bond issue

By: | Published: April 18, 2015 12:33 AM

Reliance Communications (RCom) is looking to raise funds through an overseas bond issue which will help raise $173 million...

Reliance Communications (RCom) is looking to raise funds through an overseas bond issue which will help raise $173 million (R1100 crore) to fund the upfront payment for the spectrum it acquired at the recently concluded auctions.

Ratings agency Fitch Ratings has assigned RCom’s (BB-/Stable) proposed senior secured notes an expected rating of ‘BB-(EXP), it said in a statement on Friday.

“The final rating of the proposed notes is contingent upon the receipt of documents conforming to information already received. Rcom will use part of the note proceeds to fund the $173m up-front payment for spectrum won in the March 2015 auction and the rest for capex,” the statement said.

“The notes are rated at the same level as Rcom’s Issuer Default Rating (IDR). Although the notes are secured, under our methodology for ‘Country-Specific Treatment of Recovery Ratings’, India is classed as a category D country, and, as such, the ratings of senior obligations in India are generally capped at same level as the IDR, even if they are secured,” it added.

RCom will have to pay as much as Rs 4,300 crore for the spectrum that it bought in the auctions which ended late March. The company has already made an upfront payment of over Rs 1100 crore.

Fitch expects revenue at RCom to grow by mid-single-digit percentage in FY16 primarily due to improvement in average revenue per user (ARPU),  income from assets leased to Reliance Jio Infocomm and increase in data services.

“We believe that RCom will generate at least $200m in annual free cash flow (FCF) during FY16-18 as capex and interest costs decline following its debt reduction. We forecast that RCom’s FY15 cash flow from operations of $700m-750m will be sufficient to fund its capex of around $500m-550m and dividends. We expect RCom to pay about $400m-450m in interest and taxes,” it added.

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