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Indian telecoms group Reliance Communications announced on Tuesday that it has reached an agreement with lenders on a “full resolution” of its nearly $7bn in debt, sending its shares soaring 30 per cent.
The deal will see RCom, which has been hard hit by tough price competition in India’s mobile telecoms industry, exit the retail business and recast itself as a smaller business-to-business enterprise.
During the restructuring process, the company will sell most of its telecoms assets, including telecoms towers, fibre optic cable, telecoms spectrum and a valuable 125-acre land parcel near Mumbai.
Anil Ambani, the tycoon who controls RCom, said the company expects the asset sales to raise about $3.8bn, all which will be used for pre-payment of bank loans. He said the deal does not call for RCom’s lenders to write off any debt or exchange any debt for equity.
The restructuring deal comes a month after RCom was hit by an insolvency petition from China Development Bank, its largest single creditor.
The insolvency law, which came into force last year, was designed to end the pattern of failing companies surviving for years with their founders in charge, and their creditors forced to take steep losses on loans.
But by reaching a deal with his creditors, Mr Ambani will be able to remain in control of RCom, though it will be a far smaller company.
In October, Mr Ambani had proposed a restructuring that would see creditors take a majority stake in the business through a debt to equity swap. But creditors rejected the plan after India’s central bank warned lenders about their exposure to the stressed telecom sector.
Addressing the media on the restructuring plan, Mr Ambani said RCom’s exit from the consumer mobile business was a consequence of fierce competition in the sector, which has been rocked by last year’s arrival of Reliance Jio, controlled by Mr Ambani’s elder brother Mukesh Ambani.
He suggested further consolidation of the sector was inevitable, given the huge continuing capital investments required to keep pace with the growing demand for telecoms services.
“This is a crisis of the wireless telecom sector and it has engulfed many people and many companies,” Mr Ambani said. “You really need a pipeline into the Reserve Bank of India’s printing press if you want to be in the wireless business.”
He added: “This is something which is not for 10 players to enjoy. This is for two or three of four players to enjoy — those who have unlimited money or those who have the ability raise unlimited money.”
India’s central bank recently expressed concern about the exposure of local banks to the telecoms industry, as price wars led by Reliance Jio eroded the industry’s profitability. Mr Ambani said RCom’s restructuring would significantly reduce Indian banks’ exposure to the sector.
“I hope all of them will be happy bankers and happy lenders to the rest of the Reliance group and the rest of corporate India because they don’t have to think of write-offs and they don’t have to think of equity conversions,” Mr Ambani said.