RCom or Reliance Communications is one of the big brands under the Reliance umbrella. It was founded in 2002 and is being led by Anil Ambani at present. This company has gone through a roller coaster journey with its own share of ups and downs.

Within a span of 15 years since its inception, the brand has seen tremendous highs and lows. This stock currently trading in the lower double digits. In its glory days, it enjoyed a price of over ₹750 per share.

The journey of its highs and lows is an interesting one, to say the least. What caused the stock price to crash? What is the present course of action for the company and what does the future hold in store? This article aims to cover all.

RCom share price (Reliance Communication share price)

Reliance Communications stock

Reliance Communications share price: ₹13.50 (8th January 2019)

reliance communications logo

In early 2008, the RCom share price touched a high of over ₹800 per share.

Reliance Communications: Key milestones

Begins operations under unified Reliance umbrella 2002
Anil Ambani takes charge over the split between brothers; RCom listed on the stock exchange 2006
Buys air-waves to move towards GSM technology 2008
Cuts call rates to ₹0.5/minute 2009
Non-compete with brother Mukesh Ambani annulled and debt begins to increase 2010
Signs of sharing deals with Jio for optic fiber and telecom towers 2013
Splits CDMA and GSM business; measures taken to control debt 2014
Plans announced to sell non-core assets in order to reduce debt 2015
Signs spectrum sharing pact with Reliance Jio 2016
Announces merger with Sistema Shyam TeleServices Ltd (MTS India) 2016
Announces plan to merge wireless operations with Aircel 2016
Aircel deal does not go through 2017
Shuts wireless unit and makes fresh write-off plan for lenders; RCom sells DTH arm Reliance Big TV to Pantel, Veecon media 2017
Reliance Jio announces a plan to bail out Rcom 2018

RCom troubles

Reliance Comm Ltd in the far end of 2017, announced that it had signed definitive binding agreements with Reliance Jio Infocomm Limited (Reliance JIO) for sale of Wireless Spectrum, Tower, Fibre and Media Convergence Node (MCN) assets.

It had to take this drastic measure because it has piled up a huge debt of ₹45,000 crore. This is approximately 9 times the EBIDTA of the company. The company was finding it difficult to deal with the debt with each passing day.

The credit rating of the company had also fallen to the lowest category. It seemed like the company had no other way out.

Of the total debt of ₹45,000 crore, ₹20,000 crore is foreign debt in the form of foreign loans and bonds. The entry of Reliance Jio further added to Rcom’s miseries.

In the year ended 2017, Rcom posted its first ever full-year loss. Later, the company was put into the Strategic Debt Restructuring (SDR) scheme.

In this, the company got a seven-month window to plan and change its course. Rcom announced that it had planned to pay ₹25,000 crore debt from two merger deals with Aircel and Brookfield of ₹14,000 crore and ₹11,000 crore respectively.

The main blow to these plans came when the merger deal with Aircel was called off. With this, the company had no other scope of repaying ₹14,000 crore.

In this wake, the other merger also came to a standstill. Brookfield wanted to negotiate a lower price for the merger due to the ongoing scheme of events.

After this setback, RCom had to let go off around 1200 employees. The company also shut down its DTH services and 2G mobile operations.

The next step in the debt resolution plan came in the form of an asset sale.

The company announced plans to sell assets and raise ₹17,000 crore. This is where Reliance Jio, led by the elder brother of Anil Ambani, came into the picture.

Reliance Communication had struck a ₹25,000 crore deal with the Mukesh Ambani-led Reliance Jio for the sale of its assets mortgaged with different banks, to avoid insolvency proceedings.

RCom deal with Reliance Jio

Reliance Jio struck a deal to buy a majority of the wireless assets of Reliance Communications Ltd (RCom).

This deal will give Jio access to valuable 4G spectrum. At the same time, it will help RCom repay a part of its huge debt.

Jio won the bidding and emerged with the highest quote for the assets that were on offer for sale.

On the face of it, the deal appears to be a win-win for both brothers. On the one hand, it helps Jio get most of RCom’s assets. This gives it more firepower in its telecom business. On the other hand, the deal helps RCom substantially reduce its debt.

However, this deal does not offer Reliance Comm real estate assets. At the end of this deal, RCom shall potentially be left with around 134 MHz of spectrum assets.

The deal consideration comprises primarily of cash payment. It also includes the transfer of deferred spectrum installments payable to the Department of Telecommunications. According to the deal announcement, Reliance Communication’s assets on offer include 122.4 MHz of 4G spectrum in the 800/900/1,800/2,100 MHz bands. These spectrums are spread over 43,000 towers and 178,000 RKM (route km) of fibre with a pan-India footprint. Also, it includes 248 media convergence nodes covering five million sq. ft, used for hosting telecom infrastructure.

Rcom, as per its plan, will utilize the proceeds of the sale for repayment of debt to its lenders. Its primary focus is to reduce its huge ₹45,000 crore debt.

Rcom and Aircel merger

In 2016, Reliance Communications and Maxis Communications (Aircel) announced merger plans for their mobile network.

The deal, at that time, was touted to be one of the largest in the Indian telecommunication business. The merger could potentially place the combined entity as one of the largest telecom players in the country.

Both the entities were to have a 50-50 stake in the merged entity, with equal representation on the board of directors.

The combined entity would have had assets worth ₹65,000 crore. The merged entity was expected to have ₹25,000 crore business and an EBIDTA of ₹7,000 crore.

An Rcom release said that they expected substantial gain from synergies to the tune of approximately ₹20,000 crore. The synergy benefit could be a function of economies of scale, which in turn could drive significant revenue growth, capital expenditure and operating expenditure synergies.

However, in an unfortunate turn of events, the merger was called off. The company opined that the merger could not take off due to ‘unprecedented competitive intensity in the Indian telecom sector’.

Reliance Comm said that “Legal and regulatory uncertainties, and various interventions by vested interests, have caused inordinate delays in receipt of relevant approvals for the proposed transaction. Unprecedented competitive intensity in the Indian telecom sector, together with fresh policy directives adversely impacting bank financing for this sector, have also seriously affected industry dynamics.”

Due to the fall-out of this deal, RCom was forced to look for other avenues towards its debt resolution plan. The company was expecting to clear around ₹25,000 crores in debt with the help of this deal.

RCom acquisition of MTS India

Reliance Communications in January 2016 announced the acquisition of Russian conglomerate Sistema’s Indian telecom unit (MTS India) in an all-stock deal. As a part of this deal, Sistema Shyam Teleservices Ltd (SSTL) was to hold about 10% stake in Reliance Comm and pay off its existing debt before closing the deal.

The deal was done with the rationale to empower Rcom with approximately 9 million customers and ₹1500 crore in annual revenue. The deal would also provide to Rcom the access to spectrum in the 850 Mhz band. This spectrum can be used for providing 4G services.

Rcom: Debt restructuring and asset monetization plans

Post the fall-out of the RCom and Aircel merger, RCom was to come with up a new debt resolution plan. Strategic Debt Restructuring (SDA) was enforced upon RCom by a Joint Lenders Forum (JLF) led by State Bank of India.

The company took several steps in order to reduce its debt and liabilities and improve long-term sustainability at the same time.

Towards this, RCom ran a competitive bidding process to monetize wireless spectrum, towers, fiber, media convergence nodes (MCNs), real estate assets and other asset(s)/undertaking(s). The assets also include the development of prime real estate asset situated at the Dhirubhai Ambani Knowledge City campus in Navi Mumbai.

Proceeds of asset monetization of ₹18,100 crore will be used to repay debt and reduce liabilities.

Reliance Communications: Businesses

Reliance Communications is a global enterprise telecommunication service provider. The company is at the forefront of enabling digital revolution across India and globally, with a sharp focus on the Emerging Markets of Asia-Pacific and the Middle East.

Reliance Communications Limited is a leading global communications services provider with extensive businesses.

These include a vast global subsea network; a global on-net Cloud ecosystem; extensive India and global enterprise business; India Data Center Business (IDC) and India National Long Distance (NLD) business.

In India, Reliance Comm operates wire lines telecom services to the business and government segments. These include a comprehensive portfolio spanning Network Connectivity, Cloud Connectivity, Enterprise Voice, Cloud Telephony, Access Number Services and Wholesale Voice.

With nine world-class data centers spread across key business markets in India (Mumbai, Bengaluru, Chennai & Hyderabad), RCom is a leading provider of data center services in the region to hundreds of enterprise customers.

The global business of the company comprises a complete portfolio of Wholesale and Enterprise Data Communications services offered through the global subsidiary Global Cloud Xchange (GCX), and Wholesale Voice and International calling services for retail customers.

Rcom has connections to all key business markets worldwide. To illustrate this, their strong business network spans across Asia, North America, Europe and the Middle East. The Managed Network Services platform connects the company to more than 27,000 sites across 160 countries.

Reliance Comm chairman: Anil Ambani

Anil Dhirubhai Ambani is the chairman of the Reliance ADA group, the demerged Reliance Industries Limited. He is a multi-billionaire and one of India’s wealthiest businessman.

He has a degree in Masters of Business Administration from the Wharton School of the University of Pennsylvania.

 

Anil Ambani founded the Reliance Group in 2006 and in less than 10 years, it has built a leadership position in major growth sectors of the Indian economy. Reliance Group is amongst India’s top business houses and has one of the world’s largest Shareholder/Investor base of nearly 8 million shareholders and investors.

One of the key events in his career is the IPO of Reliance Power. In 2008, he is credited to be the main lead behind one of the largest IPO’s in the country at that time. Reliance Power IPO was subscribed in less than 60 seconds on offer- the fastest in the history of the Indian capital markets.

Some of the key sectors which have witnessed tremendous growth are telecommunications, generation, transmission and distribution of renewable and non-renewable sources of power, national road highways, metro rail systems, cement, financial services, education, healthcare, media and entertainment.

Post the division of the Reliance group of Industries in 2005, Anil Ambani became the head of following Reliance group of companies- Reliance Capital, Reliance Infrastructure, Reliance Power and Reliance Communications.

Some of the other subsidiaries under the Reliance ADA group are Reliance Aerospace, Reliance Energy, Reliance Shipyard and Reliance Aerotech.

Reliance Group of Industries

The Reliance Group is a prominent business house and a leading creator of projects of national importance in infrastructure, power generation, transmission & distribution, financial services, defense manufacturing, entertainment and telecommunications, amongst others.

The Reliance Group has the largest investor base in India with over 15.5 million retail investors. Reliance Group has over 75,000 employees and serves over 200 million customers.

The Reliance Group has assets under management of over ₹4.5 lakh crore and also manages Government of India’s Employees’ Provident Fund Organisation (EPFO), Pension Fund Regulatory and Development Authority (PFRDA) and Coal Mines Provident Fund Organisation (CMPFO) Funds.

Currently, the Reliance Group has assets worth ₹3,50,000 crore, net worth of ₹70,000 crore and cash flows of over ₹21,000 crore.

Future of Reliance Communications

Out of the total debt of ₹45,000 crores, a significant portion of ₹25,000 crores may be removed with the RCom and Reliance Jio deal.

Apart from this, there are some more land and other assets which are in the pipeline to be sold. This is aimed to further reduce the debt from the balance ₹20,000 crores to roughly ₹6,000 crores.

The residual assets shall support the operations of data center business. The good thing about this is that it is mostly an annuity business. The expected income from this particular business unit can be expected to be around the ₹4000 crores.

On a standalone basis, the data center business shall be a very small business. Moreover, this business shall be operating in a highly competitive business environment, low margin space, and also on a smaller scale.

For investors, both retail and institutional investors, the main reason for concern could potentially be ongoing debt and corresponding interest payments on the high debt.

Even if the land assets were monetized and the debt was reduced by another ₹14,000 crores, the balance debt of ₹6000 crores shall have sufficient interest payments. The interest payments have a direct impact on the bottom-line of the company. Hence, the profitability will not be much.

An important factor that cannot be overlooked is that the land asset monetization/land development plan cannot happen overnight.

The entire process is not something that can be done in the next quarter or so. It will take its due course of time. Moreover, currently, there are very few real estate players who can afford that sort of investment on the basis of their balance sheet strength.

Disclaimer: the views expressed here are of the author and do not reflect those of Groww.