The worst may be over for Anil Ambani's flagship company Reliance Communications (RCom). Its strategy of reducing its huge debt by leasing its infrastructure and selling some assets has started yielding results.
On Monday, the company repaid $1-billion (about R6,000 crore) in foreign loans, bringing down its debt burden from Rs. 37,000 crore to Rs. 31,000 crore. At one go, its annual interest burden stands reduced from Rs. 2,700 crore to R2,200 crore. That's R500 crore that'll go straight to its bottom line.
"RCom is sweating (better utilising) its assets and, at the same time, also reducing its debt burden (see graphic). This is very positive for the company and will increase its valuation," said Prashant Singhal, global markets leader, Ernst & Young. This is reflected in its share price moving up from R57.1 on April 1 to R130.95 on Tuesday.
Over the years, RCom (and other R-ADAG companies) have been weighed down by heavy debts that have impaired its profitability.
Industry experts said Anil Ambani's deals with elder brother Mukesh's Reliance Jio Infocomm (RJI), first for the lease of its inter-city optic fibre cable network and then for the multi-year lease of 45,000 telecom towers marked the turning point in his fortunes.
"The arrangement is a key positive for RCom as we perceive it as a right step in monetising assets and thus deleveraging its balance sheet," said Sandip Agarwal, an analyst at Edelweiss Securities.
Then, Anil is negotiating to sell an 80% stake in Reliance Globalcomm, his international undersea cable network, to the US-based Providence Equity Partners for R7,000 crore.
His discussions with Kalanithi Maran-owned Sun group for selling RCom's DTH business for about R2,500 crore are also in their final stages.
And finally, he is negotiating to lease RCom's intra-city optical fibre cable network to Mukesh's RJI for an undisclosed sum.
If these deals go through (talks are at an advanced stage), they will help RCom reduce its debt burden further, possibly down to about R20,000 crore.
The really big-ticket deal, that's been in the works for years now, will be the sale of all or part of its stake in its telecom tower company. Anil has refrained from selling this asset as he wasn't getting the right valuation.