RCom again wants to sell RInfratel to reduce debt burden

The ADA Group company has been trying to find a buyer for its tower business and to sell a 26% stake in RCom over the past year as its debt burden has increased from Rs30,000 crore to over Rs32,000 crore

Reliance Communications Ltd (RCom) has said that it has received several offers for its controlling stake in its Reliance Infratel (RInfratel) tower unit, and that it would initiate due diligence and other processes at the earliest, in order to complete the transaction.

This is not the first time that the Anil Dhirubhai Ambani Group (ADAG) has tried to find a buyer for its tower business and to sell a 26% stake in RCom.

RCom, the second largest telecom services provider in India, said in a statement that its board of directors had noted that "based on the indicative offers, completion of such a transaction would facilitate RCom's stated objectives of achieving a substantial reduction of its overall debt position, and staying well within its target long-term leverage ratios".

"Investors are advised that this is only a preliminary disclosure, and any such potential transaction is subject to appropriate due diligence, negotiations, documentation and approvals," the company said.

On Monday, RCom reported a 71% fall in full-year net profit due to lower earnings from its wireless and broadband business. The company has been reported a fall in net profit through seven consecutive quarters to date. For the fiscal year that ended on 31 March 2011, RCom's net profit fell to Rs1,346 crore from Rs4,655 crore, while total turnover, including wireless, global, broadband and its diversified business, rose 4.4% to Rs23,108 crore from Rs22,132 crore.

For FY12, RCom has given a guidance for capital expenditure (capex) of about Rs1,500 crore, mainly on its balance sheet constraints. "The huge debt on the balance sheet and impending foreign currency convertible bond (FCCB) redemption in FY12E leaves limited scope of further fund raising for additional capex. However, it comes as a positive for its peers (Bharti, Idea in the listed space) in the industry as there would be limited competitive intensity," Emkay Global Financial Services said in a research note.

As of 31st March, RCom had a net debt of Rs32,048.50 crore, while cash and cash equivalents stood at Rs5,327 crore. The Anil Dhirubhai Ambani Group company has been trying to sell its stake in RInfratel with an aim to lower its debt burden.

In June last year, GTL, RCom and RInfratel approved in principle a Rs50,000-crore merger deal to create the world's largest independent telecom infrastructure company. But the deal did not materialise. RCom's plan to sell its 26% stake, which was announced in June, has not worked out till date.

It seems that RCom's effort to sell its towers was nothing but an attempt to diversify part of its non-core business. Towers, unless rented out to other companies are nothing but dead assets for any company, especially for mobile operators, as they are a huge burden in terms of revenues. In the case of RCom, hiving off the tower business to another company and then selling it to other parties should be seen in this context.

There had been reports that American Tower Company (ATC), besides three other companies, had shown an interest in buying RCom's tower business. ATC evaluated RInfratel at between Rs18,000 crore and Rs20,000 crore.

In March 2011, RCom signed a Rs8,700-crore ($1.93 billion) facility with China Development Bank (CDB), which included Rs6,000 crore ($1.33 billion) for refinancing 3G spectrum fee payments and Rs2,700 crore ($600 million) for equipment imports from Chinese vendors like Huawei and ZTE. The aggregate financing has a maturity period of 10 years, contributing to significant extension of RCom's debt maturity profile, apart from substantial savings in interest costs. A syndicate of Chinese banks and financial institutions, including CDB, is funding the loan facility, which is fully underwritten by CDB.

Mukesh Ambani, elder brother of ADAG chief Anil Ambani, bought Infotel Broadband Services for Rs4,800 crore from the Nahatas of Himachal Futuristic Communication. A ready-made transmission towers network can play a major role in spearheading the broadband wireless access for Reliance Infotel, which was the only pan-India winner in the broadband wireless access (BWA) auction concluded last year. Both groups, belonging to Mukesh and Anil, have denied any discussions over any RInfratel stake deal.

The RCom stock closed at Rs89.40 on the Bombay Stock Exchange today, a gain of over 2%, in a generally positive market, with the benchmark Sensex gaining nearly 1.5% to 18,503 points.

Since January 2008, when it was at a high of Rs844, the RCom stock has lost a whopping 91% or Rs769 to Rs75 in March 2011. For it to reach its previous high, the stock would have to rally by 673%.

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Comments
Ravi Padmanabhan
1 decade ago
How can a decline from Rs 844 to Rs 75 levels become a 673 % decline

The loss can never be more than 100% of your investment

In this case it is approx 91%
Yogesh
Replied to Ravi Padmanabhan comment 1 decade ago
Yes, you are right. The loss in share price comes to Rs769 or 91%. Made the correction.
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