(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)
By Jeff Glekin
MUMBAI, July 23 (Reuters Breakingviews) - Reliance Communications (RLCM.NS) just can’t seem to catch a break. The Indian telco has suffered another big setback in its attempt to shrink its $7 billion debt mountain, after failing to drum up sufficient interest for a $1 billion listing of its undersea cable assets in Singapore. Majority owner Anil Ambani may now need to consider an uncomfortable solution closer to home.
The postponement of the initial public offering of GTI Trust is just the latest glitch in Reliance’s attempts to raise cash. A desired sale of its telecoms tower unit, which was expected to raise about $3 billion from private equity investors, has dragged on for almost two years, while an earlier plan to sell a stake of up to 26 percent in the parent itself found no takers. No wonder Reliance has lost 42 percent of its value in the past 12 months, leaving it with a market capitalisation of just $2.3 billion.
Even with the promise of a dividend yield of as much as 11.5 percent for the IPO, higher than similarly structured vehicles such as Singapore-listed Hutchison Port Trust's (HPHT.SI) 8.4 percent and the 6.7 percent for PCCW’s HKT Trust (6823.HK), GTI Trust didn’t fly.
Reliance is now left with huge borrowings it can’t seem to pare and an underlying business that looks weak. The group’s average revenue per user had fallen to $1.77 in the last quarter of 2012 from $7.63 in 2008. It has 17 percent of the Indian market by customer number but only 9 percent by revenues; rival Bharti Airtel (BRTI.NS) has 20 percent of customers but 28 percent of revenue. Core wireless revenue has declined 14 percent from the first quarter of 2010 to the fourth quarter of 2012; Bharti’s increased by 5.9 percent over the same period. With competitors better able to fund investment, Reliance is likely to continue losing market share.
All this means that Anil may have to swallow his pride and approach his elder brother for support. Mukesh Ambani's Reliance Industries (RELI.NS) is sitting on a $12.7 billion cash mountain. It has acquired licences to operate a 4G network but remains short of the infrastructure and spectrum to make a comprehensive telecoms offering. The fit with Reliance Communications looks more than convenient. Now may be the ideal time for a family reunion.
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- Shares in Reliance Communications dropped more than 3 percent after the debt-laden telecoms carrier shelved an initial public offering by its undersea cable unit that it had hoped would raise as much as $1 billion, Reuters reported on July 23.
- The Singapore trust was offering a dividend yield of as much as 11.5 percent, higher than that offered by peers. The institutional bookbuilding for the IPO was extended twice last week, before the company said it was putting the offer on hold.
- Reuters: Reliance Comm shares fall after unit's Singapore IPO shelved [ID:nL4E8IN1D7]
- Reuters: Reliance posts 3rd quarterly profit drop, tops estimate [ID:nL4E8II352]
- For previous columns by the author, Reuters customers can click on [GLEKIN/]
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