India's Reliance Communications has been forced to consider some radical options for reducing its debts following the collapse of its planned merger with Aircel this week.
Reliance Communications Ltd. is to look at selling assets ranging from spectrum to real estate as it wrestles with debts of about 450 billion Indian rupees ($6.8 billion).
A merger with Aircel Ltd. was seen as a way of improving its balance sheet position, but the deal was called off this week, with the companies citing regulatory delays and opposition from some creditors.
Investors are evidently concerned about the company's prospects, with RCom's share price closing down 10.94% in Mumbai earlier today.
RCom will first look at "monetizing" its spectrum holdings in the 800MHz, 900MHz, 1800MHz and 2.1GHz bands through trading and sharing arrangements. It has 200MHz in total, valued at more than INR190 billion ($2.9 billion).
Later this month, RCom will be able to add to these holdings the spectrum assets of Sistema Shyam Teleservices Ltd, which used to operate under the brand name of MTS and was acquired by RCom about two years ago.
"The addition of SSTL's valuable spectrum holdings in the 800-850MHz band will strengthen RCom's spectrum portfolio by 30MHz and extend the company’s spectrum validity period in eight important circles in the country till the year 2033," says the press release issued by the company.
RCom also plans to sell real estate and tower assets to repay debtors. "The company is engaged with leading global and domestic players, and expects to finalize development agreements through an open and transparent process over the next few months," it said. "The company will continue to implement its plans for monetization of its tower and fiber assets, as already announced."
The company is believed to be in talks with an asset management firm called Brookfield about a possible sale of its towers.
RCom certainly boasts a huge network across India. It has a domestic optic fiber network running over 190,000 kilometers, as well as a nationwide mobile network comprising 43,000 towers and 62,000 cell sites. RCom was also one of the first service providers to realize the importance of the enterprise segment. With 39,000 enterprise customers, its data center assets cover an area of 1.1 million square feet.
RCom was already wrestling with huge debts when new entrant Reliance Jio launched services in late 2016. As a result of its aggressive campaign, India's established operators suffered losses in market share and dwindling profits. Although RCom has teamed up with RJio on infrastructure sharing, moving its CDMA customers onto a 4G network, it has been unable to withstand the competitive pressure.
The merger with Aircel was seen as an answer to that problem and a means of slashing debts. The two companies had entered into a binding agreement in September last year. But this week they called off the wedding, blaming regulators and creditors for the move.
"Legal and regulatory uncertainties and various interventions by vested interests, have caused inordinate delays in receipt of relevant approvals for the proposed transaction," said RCom. "Unprecedented competitive intensity in the Indian telecom sector, together with fresh policy directives adversely impacting bank financing for this sector, have also seriously affected industry dynamics."
The collapse of those merger plans leaves RCom with few options for reducing debts other than via the sale of assets.
On the sales front, nevertheless, it plans to maintain its focus on the enterprise segment and hopes that its Internet data center and global submarine cable network will help it to capture new enterprise customers.
"As part of the ongoing transformation and in order to enhance value for all stakeholders, the RCom board reaffirmed the focus on these cable, capital light B2B businesses, which have sustained and predictable revenues and profits, with immense growth potential," said RCom.
— Gagandeep Kaur, contributing editor, special to Light Reading