A proposed $255 million bond issue had to be shelved after failing to garner investor interest
The debt-laden mobile telephony firm, Reliance Communications Ltd (R-Com), suffered another setback to its plans of easing its debt burden when a proposed bond issue to raise $255 million had to be shelved last week as it failed to garner much investor interest. R-Com was to use the proceeds from the bond issue to extend the maturity of its debt profile and bring down interest costs.
Though the bond issue failed to go through, the company isn’t too perturbed about it. “The bond issue was withdrawn because the company wasn’t getting investors at the rates it was looking to pay,” a person familiar with the development said. He declined to be identified. “The company has already tied up alternate sources of funds and might announce the details in a few days.”
To be sure, high yielding bond issues —like the one R-Com was proposing at an interest rate of around 6%— appear to be losing favour with investors, given the Reserve Bank of India’s recent notification stopping Indian firms from raising money through overseas subsidiaries and bringing it to India without complying with guidelines governing external commercial borrowings. In a statement issued to Bloomberg on December 3, R-Com said that it would re-finance its $255 million borrowings falling due by 2017 with bilateral loan facilities with banks, for which it has obtained in-principle approvals.
After quite a few unsuccessful attempts to pare debt, including plans to hive off its telecom towers and a listing of its undersea cables business in Singapore, the Anil Ambani-led Reliance Group company did manage to bring down its net debt in the six months ended September 30 by around R5,000 crore to R36,334 crore.
This has been largely possible due to a qualified institutional placement of equity and promoter funding, through which R-Com raised around R6,100 crore in this period. At a recent analyst call, the company said that it plans to further reduce its net debt to R25,000 crore over the next 12 months through a stake sale in its Globalcom (enterprise) business and monetisation of real estate assets.
The debt reduction has begun showing a positive impact on the financials of the company. Its debt to Ebitda (earnings before interest, tax, depreciation and amortisation) ratio has come down to 5 from 5.4 earlier and has led the company’s interest expenses to fall 13% sequentially in the September quarter to R670.4 crore, a research report dated November 17 by Nomura had said. R-Com’s operating performance remains an area of concern for analysts. The company reported a 77% year-on-year drop in net profit for the second quarter of 2014-15 at R153 crore, though up 16% sequentially. Its revenues fell 3.3% year-on-year and 2% sequentially to R5,090 crore.