RCOM – TIGER ABHI ZINDA HAI, PART-2!!!

By Ruma Dubey

The newsmaker today? No prizes for guessing this one – it is Reliance Communication (RCom).

Yesterday and today, this beaten down stock ruled the gainers list and remains adamantly in the green.

Anil Ambani held a Press Conference yesterday and his announcement created a surprise. Three months ago, there was an announcement of handing over control to the lenders as it is becoming a part of the Strategic Debt Restructuring (SDR) plan. And now the news is that Rcom is exiting the earlier proposed SDR plan.

As per the new plan, the following things are proposed:

• Rcom will be exiting the SDR plan that too with none of the lenders, including the Chinese banks and EXIM Bank having to suffer any right-offs.
• To sell off its wireless business and sell land parcels at Dhirubhai Ambani Knowledge City (DAKC).
• It will be selling:

1. 122.4 MHz of 4G Spectrum in the 800/900/1800/2100 MHz bands
2. Over 43,000 towers , amongst the Top 3 independent tower holdings in India
3. 1,78,000 RKM of fiber with Pan India footprint
4. 248 Media Convergence Nodes, covering 5 Million Sq ft, used for hosting telecom infrastructure

• Prime real estate located in New Delhi, Chennai, Kolkata, Jigni and Tirupati
• The deal is to be completed before end of FY18.
• To form a special purpose vehicle for its real estate assets under which it will develop 20 million square feet space on 125 acre over 10 years.
• No debt will be converted into equity – as per the SDR plan, Rs.7000 crore of debt was to convert into equity.  
• Proceeds from asset monetisation will be used only to pay back banks, including China Development Bank with whom the company sealed an out-of court settlement.
• Its debt currently stands at Rs.45,000 crore and it plans to cut its debt by around Rs.25,000 crore through repayment once it sells its assets and spectrum liabilities.
• The residual debt after sale of all proposed assets will be Rs.6000 crore.

If and when all this is sold off, Rcom will be left with a portfolio comprising of enterprise business and mainly global submarine cable networks in India and overseas. From a telecom service provider, it will become a company providing submarine cable systems which will feed the growing cloud infrastructure. Ambani has already valued this business at Rs.15,000 crore and he said further that it will be capex-light, with 50% of revenue and 60% of EBITDA to come from out of India. So are we seeing the making of a new Rcom?

The market has given it a thumbs up because it probably see’s Rcom finally getting out completely from telecom – something which he had inherited when the group had split up between the two brothers. In fact the focus of the entire Anil Ambani group is going to shift to defence, engineering, procurement and construction businesses.

The group’s defence footsteps are still fresh. It recently started its manufacturing facility in Nagpur – this is a JV with Dassualt of France Aviation to make components for its aircraft. It has an order worth Rs.2500 crore from Indian Navy for making patrol boats and Rs.920 crore order to make a training ship and 14 patrol vessels for the coast guard. It has also bid for two landing platform docks worth Rs.20,000 crore.

This defence sector is an unchartered territory, just like its previous telecom – Rcom was a newbie when it all started. We do not know where this could head, especially based on the past track record. This trust factor is absent; there is now no faith that the younger sibling will deliver. So Rcom might be a new company, a new avatar but the promoter is the same, right?

It will take a lot of doing for Anil Ambani to climb back up to the top; more importantly to carve out a new reputation of himself where investors, shareholders and especially the banks start having some faith in him. Well, the banks have very short term memory so they might not have a problem but other stakeholders might.

This process of reinventing is good but as a Rcom stock holder, this current upsurge is the best time to exit.

PS: It is the older brother who forced the younger one to get out of telecom and he himself could now be the one buying the spectrum. Life comes full circle for whom – Anil or Mukesh?