Reliance Communications’ Lenders Decide To Invoke Strategic Debt Restructuring: Exclusive

RCom’s lenders decided to convert debt to equity as the company’s debt drops to ‘default’ rating.

Pedestrians walk past advertisements for Reliance Communications Ltd.’s Reliance Telecom, on a street in Mumbai, India (Photographer: Prashanth Vishwanathan/Bloomberg News)  
Pedestrians walk past advertisements for Reliance Communications Ltd.’s Reliance Telecom, on a street in Mumbai, India (Photographer: Prashanth Vishwanathan/Bloomberg News)  

Lenders of debt-ridden Reliance Communications Ltd., in an hastily-arranged meeting on Friday, decided to invoke Strategic Debt Restructuring at the Anil-Ambani promoted company, according to two officials present in the meeting.

SDR is a Reserve Bank of India permitted mechanism that allows banks to convert their debt to equity in companies that are facing repayment trouble. Under the SDR norms, which were first introduced in June 2015, banks can hold majority equity in a defaulting company for a period of 18 months, during which the account retains its standard asset classification.

Under the RBI’s norms, bankers are allowed to sell the 51 percent equity in two tranches of 26 percent and 25 percent respectively, once they have located a buyer. In this case though, the proposed sale of the majority of Reliance Communications’ business has already been slotted for sale or merger.

The lenders will use the SDR mechanism to hold a majority stake in RCom till the proposed merger of its wireless business with Aircel Ltd., and the sale of its telecom tower assets is completed, the two officials said. The two deals are expected to help RCom reduce its debt by approximately Rs 24,000 crore.

A Reliance Communications spokesperson declined to comment.

A consortium of 22 lenders met in Mumbai on Friday to discuss the future course of action after a third of the telecom operator’s gross debt of Rs 45,733 crore was downgraded to default by rating agencies.

Large lenders have given an in-principle approval to invoking SDR, while others are expected to follow soon.

The meeting had been called by officials of the State Bank of India (SBI), which has the highest exposure of nearly Rs 2,500 crore to the default-rated debt. Lenders were earlier scheduled to meet next week but SBI called for an urgent meeting on Friday.

To be sure, the SDR mechanism has not been able to reduce stress in the Indian banking system to a large extent. Apart from select cases like Gammon Infrastructure Ltd and Lanco Infratech Ltd, bankers have largely been unable to find buyers for the companies where SDR was invoked. If lenders are not able to locate a buyer within the defined time frame, the account will eventually get downgraded.

Also Read: Everything You Need To Know About Reliance Communications’ Default Rating

Earlier this week, two Indian rating agencies – ICRA and Care Ratings – downgraded the company’s short- and long-term debt to default, while Fitch Ratings warned of a defaultand Moody’s lowered the company’s rating by a notch.

The company later clarified that while a Rs 375-crore repayment on non-convertible debenture was delayed in February, it did eventually repay investors.

Also Read: Public Sector Banks Have Highest Exposure To Reliance Communications’ Default-Rated Debt