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: A Complete Mess

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Credit Researcher - South Asia, Bondcritic

Shrey Bhandari

Credit Researcher - South Asia

Credit

<a href="https://www.smartkarma.com/entities/5197" target="_blank" data-smartkarma-citation="entities:5197:1">Reliance Communications (RCOM IN)</a> has been granted a relief by the Telecom Disputes Settlement &amp; Appellate Tribunal (TDSAT) on 1-October-2018 as the tribunal has rejected Bank Guarantee demands made by the Department of Telecommunications (DoT). RCOM has also managed to sell off multiple large-scale assets in order to repay debt, including a INR30bn sale of fibre and infra assets to Reliance Jio Infocomm Limited (JIO). The sales have primarily been made to Reliance Jio Infocomm Limited (JIO), owned by RCOM’s Chairman (Anil Ambani)’s brother, Mukesh. RCOM launched a tender and exchange offer to the shareholders of its USD300m bonds (RCOMIN 6.5% 6Nov2020s) on 6-August-2018. This offer was approved by the bondholders on 24-August-2018, and they will receive cash proceeds up to USD118m along with USD55m in new bonds to be issued by RCOM subsidiary GCX. About 83% of bondholders accepted the offer since, in our view, they are unlikely to get a better deal in the future amidst ongoing uncertainty in planned asset sales.
RCOM’s Q1 2018-19 revenue for continuing business stood at INR10.1bn against Q4 2017-18 revenue of INR9.76bn. The Company reported a Q1 2018-19 loss of INR3.43bn as against the last quarter loss of INR197.7bn. A steady improvement in the revenue and a reduction in losses is an indicator that RCOM has made a slight progress towards its recovery. Management announced it would sell off all telecom and enterprise solutions assets in the medium term and shift focus towards the real estate sector.
On 14-September-2018, Moody’s put RCOM subsidiary GCX Limited's B3 corporate family rating (CFR) and senior secured ratings on review for downgrade. If the Company is unable to refinance its existing debt efficiently, the ratings are likely to go down. RCOM’s existing bondholders will be paid in GCX bonds and a downgrade could devalue this bond price.
Over the last three months, the price of RCOMIN has dipped sharply from 56 cents (ask) on 05-July-2018 to 27 cents (ask) on 15-October-2018. This sharp fall in the price proved us wrong and we attributed the decline to the legal proceedings brought against the company by Ericsson India as well as the legal tangle that RCOM finds itself in with the DoT, both of which we did not expect.
Despite the potential upside from here, we maintain a NEUTRAL recommendation for RCOM because of continuing uncertainties on the litigation side. New investors should not look to invest in RCOM at this point due to ongoing uncertainties. Asset sales to JIO have not yet been approved by the DoT and could lead to another legal battle in the short term. RCOM is still an unstable entity that needs to raise funds to pay off Ericsson and other lenders. We also believe it is too late now to sell the bonds.

Reliance Communications (RCOM IN) has been granted a relief by the Telecom Disputes Settlement &amp; Appellate Tribunal (TDSAT) on 1-October-2018 as the tribunal has rejected Bank Guarantee demands made by the Department of Telecommunications (DoT). RCOM has also managed to sell off multiple large-scale assets in order to repay debt, including a INR30bn sale of fibre and infra assets to Reliance Jio Infocomm Limited (JIO). The sales have primarily been made to Reliance Jio Infocomm Limited (JIO), owned by RCOM’s Chairman (Anil Ambani)’s brother, Mukesh. RCOM launched a tender and exchange offer to the shareholders of its USD300m bonds (RCOMIN 6.5% 6Nov2020s) on 6-August-2018. This offer was approved by the bondholders on 24-August-2018, and they will receive cash proceeds up to USD118m along with USD55m in new bonds to be issued by RCOM subsidiary GCX. About 83% of bondholders accepted the offer since, in our view, they are unlikely to get a better deal in the future amidst ongoing uncertainty in planned asset sales.
RCOM’s Q1 2018-19 revenue for continuing business stood at INR10.1bn against Q4 2017-18 revenue of INR9.76bn. The Company reported a Q1 2018-19 loss of INR3.43bn as against the last quarter loss of INR197.7bn. A steady improvement in the revenue and a reduction in losses is an indicator that RCOM has made a slight progress towards its recovery. Management announced it would sell off all telecom and enterprise solutions assets in the medium term and shift focus towards the real estate sector.
On 14-September-2018, Moody’s put RCOM subsidiary GCX Limited's B3 corporate family rating (CFR) and senior secured ratings on review for downgrade. If the Company is unable to refinance its existing debt efficiently, the ratings are likely to go down. RCOM’s existing bondholders will be paid in GCX bonds and a downgrade could devalue this bond price.
Over the last three months, the price of RCOMIN has dipped sharply from 56 cents (ask) on 05-July-2018 to 27 cents (ask) on 15-October-2018. This sharp fall in the price proved us wrong and we attributed the decline to the legal proceedings brought against the company by Ericsson India as well as the legal tangle that RCOM finds itself in with the DoT, both of which we did not expect.
Despite the potential upside from here, we maintain a NEUTRAL recommendation for RCOM because of continuing uncertainties on the litigation side. New investors should not look to invest in RCOM at this point due to ongoing uncertainties. Asset sales to JIO have not yet been approved by the DoT and could lead to another legal battle in the short term. RCOM is still an unstable entity that needs to raise funds to pay off Ericsson and other lenders. We also believe it is too late now to sell the bonds.

Reliance Communications Ltd. •Too Few Steps Forward•