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Cutting The Debt Burden
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RCom, India's second-largest cellular operator by subscribers, will use the proceeds from the sale to reduce its debt, which stood at Rs 31,975 crore as on 30 June. The company will also add another Rs 3,000- 4,000 crore from its cash flow to pay off the debt. RCom has also initiated a debt refinancing process, which will cut the interest costs from Rs 712.17 crore to about Rs 212 crore annually.
Experts agree RCom needs to cut its liabilities. However, poor stockmarket conditions could upset the company's plans. "RCom's market valuation has fallen by half in the past year. This will impact the valuation of its tower subsidiary," says Ambareesh Baliga, vice-president, Karvy Stock Broking.
RCom has been trying to sell its tower assets for a year, but in vain. A deal to sell the assets to GTL Infrastructure fell through at the last moment in September 2010. At that time, RCom's stock was priced Rs 160. As on 25 August 2011, it had halved to Rs 81, valuing RCom at Rs 16,718 crore. On 27 June 2010, RCom and GTL had said their tower assets would be merged and R-Infratel would transfer 54,000 towers to GTL Infra.
RCom's debt rose in May last year when it paid Rs 8,585 crore to the government to secure 3G spectrum in 13 telecom circles. Last week, the company raised a debt of Rs 8,700 crore from China Development Bank (CDB) for re-financing the licence fee and for financing imports of telecom equipment from Chinese vendors. Safawi says Rs 6,000 crore has already been drawn for refinancing the loan taken for licence fee. The loan from CDB has an extended maturity of 10 years.
In May, RCom had redeemed foreign currency convertible bond (FCCB) of $500 million as part of a debt reduction programme. Using the one-time buyback window that RBI offered during the financial downturn, the company had reduced the $1.1-billion FCCB to $925 million. RCom looks to redeem this FCCB, which matures in February next year. RCom has capex guidance of Rs 1,500 crore in this financial year. Considering the cash flow of Rs 1,602 crore in the first quarter, the capex and Rs 3,000-4,000 crore debt repayments can be achieved from internal accrual, says Safawi. A couple of weeks ago, RCom hiked call charges by around 20 per cent on its network to Rs 1.20 a minute, citing inflationary pressures. The benefit of higher rates is expected to reflect in the company's financials after two quarters.
"The peak capex in GSM, CDMA and 3G are behind us. Now, it is all about deleveraging the balance sheet," says Safawi.
(This story was published in Businessworld Issue Dated 05-09-2011)