RCom gets relief from overseas bondholders; plan cleared for a 42% haircut

In a development that takes it closer to averting bankruptcy proceedings, Reliance Communications (RCom) has secured approval of its overseas bondholders for the revised terms. The Anil Ambani-owned company had defaulted on a $300-million bond last year.

In a meeting held in London on Friday, over 83 per cent of those holding the bonds, now due in 2020, cleared the plan. According to the revised proposal, RCom will offer cash up to $118 million and $55 million bonds, to be issued by Global Cloud Xchange, the holding company of GCX, an overseas subsidiary of RCom.

Following the agreement, the bondholders will receive the new bonds of Global Cloud Xchange, which will be unlisted, unsecured and earn a half-yearly coupon of 0.1 per cent, with a maturity of four years. The new offer indicates a haircut of over 42 per cent of the face value.

It was crucial for RCom to win the approval of its bondholders, because according to the inter-creditor agreement (ICA) signed by the Indian banks, the local lenders can agree to a debt restructuring only if the dollar bonds are also restructured. The August 27 deadline, set by the RBI to settle debt, expedited the settlement with the bondholders. In its earlier offer to the bondholders, RCom had asked them to either tender their existing notes at a steep discount or exchange them for $45 million new zero-coupon notes due in 2023, to be issued by Global Cloud Xchange. RCom was earlier offering to pay 3.5 per cent of the principal for the notes. But the bondholders wanted more incentives, as they were sitting on losses. As on Friday, the bonds were trading at 38.9 cents to a dollar, which meant a 62 per cent hit taken by them. On Friday, the bonds finally closed at 38.94 to a dollar.

RCom defaulted on the bonds last year after it failed to repay its debt worth Rs 447 billion to Indian banks. In June last year, the Indian banks signed a standstill agreement with RCom. According to the agreement, RCom received a moratorium on payment of interest and principal dues to banks till December 2018. This was after RCom promised to sell its telecom infrastructure to elder brother Mukesh Ambani owned Reliance Jio for Rs 181 billion. The proceeds of the sale is to be used to repay bank debt. RCom Chairman Anil Ambani also promised to raise an additional Rs 100 billion by selling real estate to repay bank debt.

RCom, like many other smaller telecom players like Tata Teleservices and Uninor, failed to face the intense competition unleashed by Reliance Jio on the incumbents.

While the margins of big three players — Bharti Airtel, Vodafone and Idea Cellular — fell drastically, the other smaller players simply exited the sector.

The Indian lenders were also keen that RCom settles with its bondholders as the banks are sitting on a mountain of bad debts worth almost $210 billion, which has led to massive write-offs and fund infusion from the Indian government.

The RCom debt would have increased their NPA burden. Recently, Life Insurance Corporation had to invest Rs 94 billion in IDBI Bank so that the latter can meet its financial requirements. While RCom is one of the few firms which is selling assets to repay its debt, many other Indian companies have been sent to the National Company Law Tribunal for debt resolution by banks under the Insolvency and Corporate Code, 2016.

Debt-laden Reliance Communications has sought shareholders’ approval to enhance the company’s borrowing limits to up to Rs 500 billion to meet its capital requirements.

The company said its annual general meeting is scheduled to be held on September 18, 2018, to consider various proposals, including revising borrowing limits, alterations to the Articles of Association of the company, and private placement of non-convertible debentures or other debt securities.

In 2014, a special resolution had been passed authorising the board to borrow up to four times the aggregate of the then paid-up capital and its free reserves, RCom said in a regulatory filing on Friday. The resolution enables the company’s board to borrow funds “which may at any time not exceed Rs 500 billion”.