Analysts Cautious on RCOM Bonds Even After Debt Relief

MUFG Securities Asia expects “limited enthusiasm” for Reliance Communications’ bonds at this stage,"
according to a note from Rick Mattila, international head of market strategy.

The bonds offer relatively limited protection to noteholders and it appears likely that the bonds will in effect be subordinated to most of the group’s other debt,” Mattila wrote, while noting that the additional time to address debt reduction “is in some ways a positive” .

Lucror said the intensified competition will continue to pressure the Indian company’s revenue and earnings and further weaken its already stretched balance sheet, according to a note.

Citi doesn’t see value in the company’s 2020s in the 70 cents on the dollar area and expects sellers on any bounce in prices, its credit analyst Manjesh Verma writes in a note.

NOTEs:

The 2020 bonds were at 69.9 cents on the dollar on Friday, down 13.8 cents on the week, and following a 17 cent drop the previous week, according to Bloomberg compiled prices.

Creditors have given Reliance Communications until December to sell its towers to Canadian asset manager Brookfield Infrastructure Group and merge the wireless business with Aircel, Chairman Ambani said at a Mumbai press conference Friday.

These transactions will help the company reduce debt by 60%, he said.

"The combined impact of the group’s expected asset sales andother measures is a INR250b  reduction in debt, but this willstill leave a debt burden of around INR200b  for the company to address," MUFG’s Mattila says".

Given that the mobile business is the group’s main cash flow generator, it remains to be seen whether the remaining businesses will be sufficient to support to remaining debt burden even if we assume successful completion of the debt- reduction plan."

Reliance Communications’ bonds look vulnerable as it appears likely that they will in effect be subordinated to most of the group’s other debt, “including structurally better placed debt in the expected new mobile joint venture with Aircel".

“This is in sharp contrast to the GCX bonds which sit in the subsea cables subsidiary and are supported by a relatively good security and covenant package”.

Earlier Stories:

- Reliance Communications may seek bondholders’ consent to buy back USD notes: HSBC

- Default is a ‘real possibility,’ Fitch says.

Bloomberg News
June 5, 2017, 05:04:37 GMT

Reporting by Neha D'silva, with assistance from Carrie Hong; Editing by Tom Freke, Beth Thomas