The slow progress in Reliance Communications’ plans to reduce debt by selling assets is costing billionaire Anil Ambani.
India’s fourth-largest wireless operator faces higher financing costs ahead of repayment deadlines in coming months, with yields on its dollar bonds rising in April for the first time in three months. Moody’s Investors Service, which changed its ratings outlook to negative from stable earlier this month, says a failure to refinance could lead to a multi-notch downgrade in the future.
“Persistent delays in the sale of assets have made the company’s metrics more vulnerable,” said Nidhi Dhruv, a senior analyst at Moody’s in Singapore. The company has already breached some debt covenants and will continue to be dependent on waivers until the asset sales materialise, she said, declining to say which covenants had been breached.
Ambani, who announced plans including selling cellular towers in December to help the company become net-debt free by March 2017, hasn’t yet announced closure of any of those deals.
Reliance Communications stock was Asia’s worst performer in a gauge of telecom shares last quarter and has lost a third of its value in 2016. The company had net debt of Rs404.8bn ($6.1bn) as of December 31, company filings show. It has to repay $450mn this quarter and $1.6bn by March 2017, according to estimates by Moody’s.
Rajeev Narayan, a spokesman for Reliance Communications, didn’t reply to an e-mail and text messages seeking comments on debt repayments, progress on asset-sale plans and covenant waivers.
While the delays may result in negative rating actions, the company also referred to as RCom should be able to refinance its debt, according to Lucror Analytics, an independent credit research firm.
“I think lenders are willing to extend the waivers,” said Trung Nguyen, a Singapore-based credit analyst at Lucror. “There is little scope for deleveraging using internal cash flows. RCom will likely remain a relatively small telco with a highly levered balance sheet.” The yield on RCom’s 2020 dollar bonds has climbed 12 basis points this month to 5.90%, data compiled by Bloomberg show. That compares with a record low of 5.67% on April 7, when Moody’s lowered the firm’s rating outlook. In comparison, yields on Indian corporate notes in greenback have fallen 27 basis points since March 31 to 4.14%, according to Bank of America Merrill Lynch indexes.
Ambani and other founders owned 59.1% of the company as of March 31, stock exchange data show.
RCom in December said it signed a non-binding pact to sell its cellular towers across India to private equity firms Tillman Global Holdings and TPG Asia. The deal was to be ratified by January 15. RCom also said in December that it is in talks to merge with smaller wireless carrier Aircel but in March extended the initial 90-day exclusivity period for the discussions till May 22.At the same time, potential delay in the rollout of the fourth-generation wireless network by Anil’s elder sibling and India’s richest man Mukesh Ambani, could be deferring the rental income RCom expected from its pact with Mukesh’s firm. The commercial launch of Reliance Jio Infocomm’s services may be pushed to December, The Economic Times reported last month.
“The delay in the sale of towers is credit negative and a cause of concern,” said Nguyen of Lucror, which lowered its recommendation on RCom’s 2020 dollar bonds to ‘sell’ following the delay. “Furthermore, the company hasn’t been gaining market share while the top players are consolidating their positions.”       RCom’s share of India’s billion-plus wireless subscribers’ market dropped to 9.9% in February from 11.1% in August 2015, according to data from the regulator. It reported net sales of Rs52.3bn for the quarter ended December, down from Rs53.6bn a year earlier.
While RCom’s shares have jumped 15% in April as India’s government approved of the firm’s airwave-sharing pact with Reliance Jio, the gains have come after a 43% slump in the previous three months. The stock is down 35% in 2016, compared with a 1.3% decline in the broader S&P BSE-100 index.
Moody’s mentioned net worth, net debt-to-EBITDA and EBITDA- to-interest expense as some of RCom’s debt covenants in a report in December. The wireless carrier continues to have a weak liquidity profile, and remains reliant on recurring covenant waivers from banks due to its high leverage, Moody’s wrote in an April 13 report.
“Had the tower deal progressed on the original timeline, it would have closed in the quarter ending June, alleviating the refinancing pressures,” said Dhruv of Moody’s. “Now, even when the final tower deal is announced, it’ll take another six months to close.”