RCom is hurting and it's not only the debt burden
This could have been the premise of a Bollywood potboiler but it isn't. While Mukesh Ambani's Reliance Jio is disrupting the market by giving services at dirt cheap prices, it is also hurting someone very close to home; Anil Ambani's Reliance Communications Ltd, which is balking under stiff competition as well as a debt of Rs. 44,000 crore. Here's all about it.
Losses and stop-gaps
While its debts are piling up, RCom posted its first full-year net loss of Rs. 1285 crore since its inception, causing bourses to panic and stocks ending up in the red zone. RCom is trying to put its house in order by selling towers to Brookfield Infrastructure Group and merging its wireless business with Aircel; which would prevent the fall, but not for long.
The sector itself is not in a good place
RCom said the fall was inevitable as, "for the first time in over 20 years, the telecom sector registered de-growth in revenues, leading to a reduction in government's share in revenues, sharp drop in operating margins." This was "accompanied by increased interest costs arising from a staggering industry debt burden, and higher depreciation and amortization charges as a result of higher spectrum purchase costs."
RCom is dangerously close but may just survive
Right when the NDA government is taking stringent measures to handle NPAs and defaulters, RCom has managed to get itself on the defaulters' list of more than 10 local banks. It's been given "special mention account" tag by some, which would buy it a little bit more time. RCom has roughly 90 days to cough up the interest payment to stop being a defaulter.
Solution to the current problem
RCom said to ET, "Post signing of binding documents for the Aircel and Brookfield transactions, RCom has formally advised all its lenders that it will be making repayment of an aggregate amount of Rs. 25,000 crore from the proceeds…" Moreover, "the said amount will cover not only all scheduled repayments, but also include substantial pre-payments to all on a pro-rata basis."
The bigger problem in hand
Telecom sector is in major disarray owing to tariff wars and increasing debt burden within all the majors. Co-CEO of RCom, Gurdeep Singh recently said, "The current stress in the telecom sector is a matter of grave concern not only for the industry players but also for the financial sector, regulators and government" and therefore government should take measures to help the ailing sector.
