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Fitch: Ratings on RCom, GCX Unaffected by RCom Debt Revamp Plan
November 1, 2017 / 2:32 AM / 2 months ago

Fitch: Ratings on RCom, GCX Unaffected by RCom Debt Revamp Plan

(The following statement was released by the rating agency) SINGAPORE, October 31 (Fitch) The ratings on Reliance Communications Limited (RCom, Restricted Default) and its wholly owned subsidiary Global Cloud Xchange (GCX, B-/Negative) will be unaffected by Rcom's debt restructuring plan, Fitch Ratings says. We expect to re-rate Rcom once there is clarity on the execution of sale of its assets and the capital structure of the reorganised entity. GCX's ratings are driven by its relatively weak trading position and its liquidity; reduction of its cash balance to below USD40 million could lead to negative rating action. On 30 October, Rcom announced a plan to restructure its INR458 billion (USD7 billion) of debt. It plans to convert debt of INR70 billion into equity, sell spectrum, tower and fibre assets for INR170 billion, and sell real estate of INR100 billion. Rcom owns about 125 acres (50.5 hectares) of land in Dhirubhai Ambani Knowledge city (DAKC), in Mumbai, India and other real estate assets across eight cities in India. It plans to monetise spectrum assets in the 800MHz, 900MHz, 1800MHz and 2100MHz bands by sharing and trading with other Indian telcos, most likely Reliance Jio, which is owned by Reliance Industries Ltd (BBB-/Stable). Rcom also owns 43,000 towers and 178,000 route km of inter- and intra-city fibre optic cables. Rcom's lenders will convert INR70 billion of debt into equity and will invite a strategic investor to inject equity before the end of 2017 and manage the remaining businesses. Rcom continues to be in a standstill agreement with its lenders until end-2017. We rate Rcom's USD300 million senior secured bond due 2020 at 'C' with Recovery Rating of 'RR4'. We believe that once lenders take more than 51% stake in Rcom from the Anil Dhirubhai Ambani Group (ADAG), the change of control clause in the bond documents will be triggered and bondholders can accelerate the bond repayment. ADAG group will retain about 26% of shareholding after the debt restructuring. Rcom expects the debt-to-equity conversion to happen before the end of 2017, although lenders would require their respective boards' approvals to convert debt into equity. We expect Rcom to gradually exit from the wireless voice business and significantly scale down its operations due to intense competition. It announced that it will focus on offering 4G services as a mobile virtual network operator after selling its spectrum assets. Rcom called off its plan to merge its wireless operations with Aircel Ltd, owned by Malaysia's Maxis Berhad, citing regulatory and competitive reasons. Rcom said that its plan to sell 51% stake in its tower operation to Canadian pension fund Brookefield for INR110 billion may now fetch lower value because it plans to shrink its wireless business and the absence of merger with Aircel. We expect the restructuring to transform RCom from an integrated telecom company to a business-to-business bandwidth services provider with three segments - GCX, enterprise and data centre business. However, the post-restructuring Rcom will not benefit from GCX's cash flows, which are largely ring-fenced under its USD350 million senior secured bond documents. We expect GCX's end-September 2017 cash balance to fall closer to USD40 million - the threshold below which we will consider negative rating action. We expect its indefeasible right of usage sales to be below USD25 million during the six months ended September 2017 - lagging management's expectations of USD64 million for the full year to 31 March 2018. GCX's undrawn revolving credit facility of USD30 million has lapsed. Its only debt is the USD350 million bond, which is due in August 2019 and the next coupon payment is due in February 2018. Contact: Nitin Soni Director Corporates +65 6796 7235 Fitch Ratings Singapore Pte Ltd. One Raffles Quay South Tower #22-11 Singapore 048583 Media Relations: Bindu Menon, Mumbai, Tel: +91 22 4000 1727, Email: bindu.menon@fitchratings.com; Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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