Reliance group debt recast in fast lane after hiccups

RCom's debt was Rs 44,500 crore as on December last year, according to ICRA's estimates

The Anil Ambani-owned Reliance group, which has taken several steps to reduce its debt via asset sales, is facing resistance from some lenders who are seeking to protect their interest before they give go-ahead to any restructuring. As a result, a few transactions moved into the slow lane. 

Group officials, however, said these transactions would close in the current financial year as they negotiate with lenders to get their approval to these deals.

In the past two years, the group has announced the merger of the wireless telephony business of Reliance Communications (RCom) with Aircel and Sistema Shyam, the sale of telecom towers to Brookfield Asset Management and getting Canadian pension funds to invest in Reliance Infrastructure’s Mumbai power business.  

China Development Bank, which seeks clarity on how its $1-billion loan to RCom would be paid back, has raised objections to the merger with Aircel. The Chinese bank moved the NCLT (National Company Law Tribunal) in Mumbai, which has adjourned the case.  When contacted, a Reliance Communications official said the dispute with China Development Bank would be sorted out as it was in the interest of all parties to get the merger going. 

Similarly, in December last year, insurance major Life Insurance Corporation filed an affidavit with the Bombay High Court, saying Reliance Infrastructure would have to repay some bonds due this year and set a requirement that its exposure to the new company’s debt and equity not exceed 20 per cent following the revamp. As a result, Reliance Infra changed its plans and the restructuring has now received the court’s approval. In the process, its recast spilled over to the current financial year. The firm had signed a non-binding term sheet with the Canadian pension fund, PSP, to sell 49 per cent of its Mumbai power generation, transmission and distribution business. 

The transactions are crucial for group companies to reduce debt so that the group can focus on its defence business, which has been identified as its next growth area, say analysts. The RCom-Aircel merger, which entails transferring the business to a separate company, would reduce RCom’s debt by Rs 20,000 crore once the merger is through. RCom’s debt was Rs 44,500 crore as on December last year, according to rating firm ICRA’s estimates.

While downgrading its debt earlier this month, ICRA had said RCom’s financial profile was characterised by sizeable debt levels and was expected to remain stretched. “The RCom group is involved in reorganisation of its business, wherein its wireless operations are getting merged into that of Aircel and its tower business is being acquired by Brookfield Infrastructure group. Both the deals aim at debt reduction; however the debt coverage metrics of the residual operations are expected to remain stretched,” it said. 

In Reliance Infra, besides hiving off the Mumbai power business into a separate subsidiary and then divesting 49 per cent by FY18, the company has also proposed to set up an infrastructure investment trust (InvIT) by transferring its 10 operational special purpose vehicles. The proceeds of Rs 2,500 crore from listing of the InvIT would be used to cut debt. The group, however, did manage to close a few deals such as the sale of its cement company to Birla Corp for Rs 4,800 crore in February last year. 
 

Reliance Capital, the group’s financial arm which is doing well, announced and completed sale of stake in its insurance and mutual funds ventures. On Wednesday, Reliance Capital received permission to demerge its home finance business and list it on the bourses. Reliance Capital’s sale of its general entertainment business to Zee group in the last fiscal is also pending, as per Bloomberg data.