Reliance Communications 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 per cent in the parent itself found no takers. No wonder Reliance has lost 42 per cent 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 per cent for the IPO, higher than similarly structured vehicles such as Singapore-listed Hutchison Port Trust’s 8.4 per cent and the 6.7 per cent for PCCW’s HKT Trust, 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 per cent of the Indian market by customer number but only nine per cent by revenues; rival Bharti Airtel has 20 per cent of customers but 28 per cent of revenue. Core wireless revenue has declined 14 per cent from the first quarter of 2010 to the fourth quarter of 2012; Bharti’s increased by 5.9 per cent 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 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.
