RCom says telcos facing cash flow issues due to ‘go slow’ approach by banks

Telecom operator Reliance Communications said companies in the sector are facing cash flow issues due to what it called a ‘go slow’ approach taken by banks in disbursing loans.

In an update on its ‘standstill agreement’ with its lenders, which provides it a window of seven months to complete a merger with local units of Sistema and Maxis, the company said it was “working expeditiously” to complete the mergers.

The company has promised lenders that it will reduce its debt — currently at around Rs 45,000 cr — by paying back around Rs 25,000 to its lenders after the completion of the mergers.

“..the telecom sector is passing through a challenging phase,” the company, led by Anil Ambani, said.

“A combination of intense competition, price War and the bidding race for radio waves has resulted in rapid deterioration in the finances of telecom operators. Major listed telecom operators have reported net loss in the financial year 2016-17.

“The telecom industry is capital intensive, as a result of this debt of telecom companies have been ever rising. For the first time in history, the listed telecom operators’ debt has exceeded their market capitalization.

“As a result of increase in debt and decline in revenues, the debt servicing capabilities of telecom Companies have been adversely impacted. The telecom industry’s Current financial problem to some extent can be attributed to entry of a new telecom operator and its strategy of freebies to gain customer and market share.”

“Given the current environment of stagnant revenues with rising capex and operating cost, the domestic banks are very pessimistic and averse to lend to telecom Companies. The ‘go-slow’ approach by domestic banks is not only adversely impacting the Corporate in making investment decisions but also important refinancing programs, which is not only creating a mismatch in cash flows of Corporate but also impacting the bank’s financials due to increased provisioning.”

It also gave details of the ‘standstill agreement’ with its lenders including the Life Insurance Corporation of India.

“A meeting of all the Secured Lenders (including NCD holder) were held on 2 June, 2017 and June 23, 2017 in Mumbai and based on applicable guidelines; the lenders have invoked Strategic Debt Restructuring Scheme and constituted a Joint Lenders’ Forum (JLF) to consider and approve the Company’s Strategic plans.

“The Company has been engaged in discussions with its lenders to finalise an overall debt resolution plan, with the objective of expeditiously closing the already announced major strategic transactions with Aircel Limited and Brookfield and to reduce debt by Rs.25,000 crore.

“The lenders have taken note of the advanced stage of implementation of our strategic transformation programme involving inter alia the nsactions for the Wireless and Towers Business. The lenders have given time of 7 months till December 2017 to complete the above transactions, and reduce debt. Thus, there will be a Standstill period on the Company’s debt servicing obligations for next 7 monthS til end December, 2017.”

Shares of RCom were trading up 0.7% at Rs 21.10 on the NSE at 9:28 AM.