Reliance Communications shares jump on debt revamp plan

Shares in Reliance Communications jumped as much as 16 per cent on Tuesday after the troubled Indian telecoms company announced a debt restructuring proposal that would dramatically shrink its business, while handing a majority equity stake to its creditors.
RCom, controlled by tycoon Anil Ambani, has been struggling to repay Rs457bn ($7bn) of debt amid a price war launched by new entrant Reliance Jio, run by Mr Ambani’s brother Mukesh.
On Monday night RCom said that, if lenders accepted its plan, Rs70bn of debt would be converted into 51 per cent of its equity. A further Rs170bn would be repaid with funds raised through the sale of spectrum, towers and related assets, with an additional Rs100bn to be repaid through real estate sales.

This would leave RCom with “sustainable and conservative” secured debts of Rs60bn, the company said.
But the asset sales will leave RCom with a far smaller consumer mobile business that will be entirely reliant on access to Jio’s network, secured through a 2015 agreement.
Punit Garg, RCom’s executive director, told the Financial Times that secured creditors had welcomed the plan at a meeting on Monday, calling it a rare instance of an Indian company making a debt proposal that did not involve a writedown for creditors.
The company aimed to repay additional unsecured debt of Rs50bn with further asset sales that were not specified in the announcement, Mr Garg added.
The shares rose as high as Rs18.30 on Tuesday, up from the previous close of Rs15.75 and indicating a market capitalisation of Rs45.3bn.
The new plan follows the breakdown of RCom’s plan to merge its core mobile business with rival Aircel, which had been delayed by creditors’ objections and a probe into a 2005 acquisition of Aircel by Malaysia’s Maxis Communications.

RCom on Tuesday outlined its hopes for its business services division, which includes an international cable network and has “predictable annuity revenues” in a less competitive market than India’s consumer telecoms sector.
Mr Garg said the consumer business would in future account for only 10-20 per cent of RCom’s revenue. At the end of November RCom will close its service running on the 2G network protocol, relied on by customers with less advanced handsets, who Mr Garg said accounted for about 80 per cent of its 71m customers.

RCom will also end its 3G services after “a few months”, he added, leaving it serving a far smaller number of high-end smartphone users through Jio’s physical infrastructure. The 2015 agreement between the companies, seen as evidence of a rapprochement between the Ambani brothers after a lengthy feud, allows Jio to use spectrum owned by RCom in exchange for giving access to its network.
Neil Shah, an analyst at Counterpoint Research, said RCom’s new model was unlikely to survive in the intensely competitive Indian consumer mobile market, with rivals openly courting its customers through promotional activities.
“They must be also planning an exit strategy in parallel,” he said, suggesting that Reliance Jio could be a possible buyer of RCom’s mobile business if approval could be secured from competition authorities.