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Tech Mahindra has filed an insolvency petition against RCOM

Tech Mahindra Ltd. has filed cases under the Insolvency and Bankruptcy Code (IBC) against the Anil Dhirubhai Ambani Group’s (ADAG) telecom arm Reliance Communications (RCOM), and its subsidiary companies Reliance Telecom Ltd. and Reliance Big TV Ltd. (Big TV), with the National Company Law Tribunal (NCLT) for non-payment of dues, reports Livemint. According to the petition, RCOM owes Tech Mahindra Rs 3.6 crore, Reliance Telecom owes Rs 3 crore, and Big TV owes Rs 1.5 crore.

These cases were filed on September 26, and will be heard by NCLT on October 9. Tech Mahindra had certain service agreements with RCOM and its subsidiaries, which haven’t been met and hence the cases.

RCOM, had a debt of Rs 45,000 crore at the end of FY17, had said that it will pay out Rs 25,000 crore out of the total debt to its lenders by December 2017. To raise Rs 25,000 crore the company had confirmed two plans:

  1. Merger with Aircel’s wireless business unit, which was signed in September last year to reduce debt by Rs 14,000 crore.
  2. Its tower sale deal with asset management company Brookfield, to further reduce debt by Rs 11,000 crore. After the asset sale, the company claims that it can settle 80% of the outstanding debt amount.

However, earlier this month, RCOM called off the merger with Aircel, because of regulatory delays and “interventions by vested interests.”

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. As a result of the various factors aforesaid, the merger agreement has lapsed.

Apparently, now the company will sell real estate assets and optimise its spectrum holdings in order to pay off its debt, as reported by Reuters. And the Brookfield deal is still in the works, with no specific date attached to its completion.

Note that the company’s lenders had decided to initiate Strategic Debt Restructuring (SDR) process, giving RCOM time until December 2017 for repayment of all outstanding debt. As per conditions of the SDR scheme, if RCOM fails to make the payment by December, lenders will have the right to convert a part of the debt into equity shares.

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Other initiatives to reduce debt

  • In June this year, RCOM had put for sale its 318,000 sq ft Reliance Centre office in New Delhi and a 600,000 sq ft DAKC- World Class IT park in Navi Mumbai, to clear off a part of its mounting debt. The sale was expected to fetch Rs 11,000 crore, but it’s not clear if RCOM went through with this or not.
  • In the same month, the company had also said that it might look at selling its DTH business, Reliance Digital TV, in order to reduce debt.

RCOM financials

RCOM posted a loss of Rs 1,221 crore for the quarter ended June 2017 (Q1FY18), which is an increase of 26.3% from Rs 966 crore loss reported in the previous quarter. In the same quarter last year, RCOM had reported a profit of Rs 54 crore. For the quarter, total income was at Rs 3,591 crore, down 20.6% quarter-on-quarter (QoQ) from Rs 4,525 crore, and down 33% year-on-year (YoY) from Rs 5,361 crore revenues in Q1FY17.

Note that RCOM did not reveal subscriber numbers or usage metrics for this quarter. The previous quarter’s usage and subscriber base data were:

  • Total subscriber base: 84.7 million.
  • Mobile broadband (3G + 4G) connections: 20.8 million in last quarter Q4FY17, down 11% QoQ from 23.4 million in Q3FY17.
  • Drop in Internet subscribers: RCOM lost 3.7 million mobile Internet subscribers during the last quarter, 3.1 million mobile Internet users in Q3FY17, and another 3.8 million data connections in Q2FY17 as the company switched off CDMA services.
  • Data usage: Total mobile data traffic generated on RCOM’s network was 79.55 billion MB during Q4FY17, down 15% QoQ from 104.8 billion MB in Q3FY17. Data usage per customer also decreased to 880 MB from 931 MB per data customer during the period.
  • Average revenue per user (ARPU): Rs 141 in Q4FY17, down significantly from Rs 154 in the Q3FY17.

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