After collapse of merger talks with RCom, what next for debt-laden Aircel?

While Aircel might face serious challenges in restructuring debt, it could close down some of its unviable circles to cut cost and then look at another telco for a tie-up or sell-off

After its proposed merger with Anil Ambani-promoted Reliance Communications fell through on Sunday, telecom service provider Aircel now stares at a serious challenge in restructuring its debt of over Rs 18,000 crore. 

Entirely dependent on 2G, 3G data services and voice revenues at a time when the market is increasingly shifting to 4G and cheap data, Aircel saw its market share drop to 7.58 per cent in August this year from 8.72 per cent a year earlier.

Based on financial data for the quarter ended June 2017, as available with the Telecom Regulatory Authority of India (Trai), eight of Aircel’s 21 circles account for only about five per cent of its total revenues, while three key circles — Tamil Nadu (including Chennai), Assam and Bihar — account for over 46 per cent. In Tamil Nadu (including Chennai), Aircel is among the top three players. In circles like Haryana, Madhya Pradesh, Gujarat, Kerala, Uttar Pradesh West, Himachal Pradesh and Punjab, the company’s revenues ranged from zero to Rs 20 crore in June quarter. 

According to experts following the company, one option for Aircel is to shut shop in some of the circles, especially those not generating enough revenue. It could reduce its costs by this and then look for a new partner or buyer. Till July this year, its subscriber market share stood at 0.29 per cent in Madhya Pradesh, 0.88 per cent in Kerala, 1.29 per cent in UP west and 2.88 per cent in Punjab — all of these numbers are seen as too small to justify the telco’s presence in the markets.

Aircel declined to comment on a detailed Business Standard questionnaire that included a query on whether the company would look at trimming its business 

According to analysts, Aircel had a total debt of Rs 18,000 to Rs 20,000 crore, which was partly reduced as it sold its 2,100-megahertz (MHz) spectrum to Airtel for around Rs 3,000 crore. 

If its merger deal with RCom had gone through, Aircel could have transferred Rs 14,000 crore of its debt to the new company, which would have substantially improved its balance sheet. 

According to experts, assuming its earnings before interest, tax, depreciation and amortisation (Ebitda) was in line with RCom’s — the proposed venture was supposed to be a 50-50 one — the remaining debt of Rs 7,500 crore would have meant a healthy debt-to-Ebitda ratio. It would have needed to write off or repay only Rs 4,000 crore. 

However, now that the proposed RCom deal is off, Aircel finds itself in a spot in so far as restructuring of its debt is concerned. It could still sell the 2,000-odd telecom towers that it owns, but that would not generate enough cash. Besides, it could sell some of its spectrum or trade in it, especially in the areas where it closes operations (should it decide to close operations, that is). 

Aircel owns about 0.8 per cent of pan-Indian 900-MHz spectrum and 101.4 MHz of the 1,800-MHz spectrum (about 3.8 per cent of pan-Indian spectrum). 

These are valuable assets that Aircel could monetise. 

Also, if the company closes down unviable circles to cut costs and leverages its substantial revenue share in certain markets, it could tie up with another telecom player or sell the business off.