Asian Fixed Income/Frontier Market Research

Bondcritic

Bondcritic, established in 2009, is designed to be an independent credit research voice that helps investors gain insights and unbiased analyses on Asian fixed income market. Our mission is to discover deep-value Asian high-yield and distressed bonds with a bottom-up approach, together with the help of our proprietary ESG (Environmental, Social Development, and Governance) model. At the same time, we focus on bringing investment cases of unrated and unloved issuers to the general public.

Reliance Communications Ltd. •Too Few Steps Forward•

Reliance Communications: Waiting to Exhale

Credit Researcher - South Asia, Bondcritic

Shrey Bhandari

Credit Researcher - South Asia

Credit

<p>The legal battle between <a href="https://www.smartkarma.com/entities/5197" target="_blank" data-smartkarma-citation="entities:5197:1">Reliance Communications (RCOM IN)</a> and its lender group has further intensified after the Supreme Court directed the company to submit INR4.53bn within four weeks. The Court ruled that Chairman Anil Ambani had wilfully not paid INR5.5 bn to Swedish Telecom equipment maker <a href="https://www.smartkarma.com/entities/27982" target="_blank" data-smartkarma-citation="entities:27982:1">Ericsson (Lm) Tel-Sp Adr (ERIC US)</a>. In our view, the situation has become almost untenable for RCOM and Mr. Ambani as the company will struggle to sell off its spectrum and other assets in time. In addition, The spectrum sale is yet to be resolved and this means that raising funds quickly remains a challenge. We have revised our recommendation for RCOM 6.5% 20s from NEUTRAL to UNDERWEIGHT due to the on-going negative headlines which we believe is an asymmetric downside risk to the bonds. This is despite some positive developments we highlighted in our last report (<a href="https://www.smartkarma.com/insights/reliance-communications-ltd-too-few-steps-forward" target="_blank" data-smartkarma-citation="insights:25127">Reliance Communications Ltd. •Too Few Steps Forward•</a> dated 18-Oct-18) and our recovery calculation in our previous report (<a href="https://www.smartkarma.com/insights/reliance-communications-waiting-to-exhale" target="_blank" data-smartkarma-citation="insights:21931">Reliance Communications: Waiting to Exhale</a>  dated 07-Jul-18), which is proven wrong by the market.</p>

The legal battle between Reliance Communications (RCOM IN) and its lender group has further intensified after the Supreme Court directed the company to submit INR4.53bn within four weeks. The Court ruled that Chairman Anil Ambani had wilfully not paid INR5.5 bn to Swedish Telecom equipment maker Ericsson (Lm) Tel-Sp Adr (ERIC US). In our view, the situation has become almost untenable for RCOM and Mr. Ambani as the company will struggle to sell off its spectrum and other assets in time. In addition, The spectrum sale is yet to be resolved and this means that raising funds quickly remains a challenge. We have revised our recommendation for RCOM 6.5% 20s from NEUTRAL to UNDERWEIGHT due to the on-going negative headlines which we believe is an asymmetric downside risk to the bonds. This is despite some positive developments we highlighted in our last report (Reliance Communications Ltd. •Too Few Steps Forward• dated 18-Oct-18) and our recovery calculation in our previous report (Reliance Communications: Waiting to Exhale  dated 07-Jul-18), which is proven wrong by the market.

Reliance Communications Ltd: A Complete Mess