Lenders reluctant to convert RCom shares at a premium

Lenders saddled with Rs 45,000 crore of Reliance Communications’ debt are not keen to convert it at the higher price announced by the company earlier to its shareholders because the current market price is far below the conversion price. Taking this price into account, the lenders are supposed to convert their debt in lieu of a 51 per cent stake in the company at a total equity valuation of Rs 6,150 crore as compared with the current market value of Rs 4,306 crore.

According to a notice to its shareholders, Reliance Communications’ lenders are to convert their debt into shares at the rate of Rs 24.71 and Rs 24.73 per share, which is the average of the closing prices of the equity shares on the National Stock Exchange and BSE during the 10 trading days, preceding the reference date (being June 2). On June 2, the lenders had agreed to a strategic debt restructuring (SDR) package for the company.

Lenders said they would convert Reliance Communications’ debt, if need be, at an average price which would be closer to the date of conversion, instead of the valuation of Rs 24.71 a share announced by the company earlier. “We will seek specific alternate plans, including exploring some other investor. Lenders will not like to work in a hurry to announce it (Reliance Communications’ debt) as a bad loan as it will create a burden over making huge provisions immediately,” said a banker. “The chances of an individual lender moving the National Company Law Tribunal (NCLT) are quite low at this time as banks will deal with the borrower collectively under the SDR pact,” the banker said. The lenders to Reliance Communications are meeting next week to discuss the company's future after its two lifeline deals — a merger with Aircel and the sale of towers — collapsed. Banks and financial institutions that have exposure to Reliance Communications are Life Insurance Corporation, State Bank of India, Axis Bank, Bank of Baroda, Standard Chartered Bank, Punjab National Bank, Syndicate Bank and IDBI Bank among others.

Bankers said they had taken note of the collapse of the Reliance Communications-Aircel merger deal, which would increase stress on the company. According to the merger deal, Reliance Communications was to transfer Rs 20,000 crore of its Rs 47,700 crore (gearing at 10 times its earnings before interest, taxes, depreciation and amortisation) to the joint venture. In a report, global brokerage firm CLSA said Reliance Communications’ mobile operations continued to slip in execution with an 80 basis point revenue market share loss in the last six months alone and 11 percentage points from its peak to a mere 3 per cent.

CLSA said with the Aircel deal off, Reliance Communications was staring at the bunched-up expiry of nearly 50 per cent of its spectrum in the 800 MHz and 1800 MHz bands in 2021. “At present, Reliance Communications’ 2G subscribers are on the 900/1800 MHz bands and its 4G subscribers are on the 800 MHz band. Reliance Communications’ revenue coverage of the 800 Mhz band could fall from 100 per cent to 26 per cent post 2021, although its merger with Sistema will boost this to 55 per cent.

However, Reliance Communications’ inability to renew the 1800 MHz spectrum could see its revenue coverage in the 900/1800 MHz bands fall sharply from the current 92 per cent to 40 per cent, adding further risk,” CLSA said in a report on Tuesday.