Reliance Group chairman Anil Ambani has “voluntarily” decided to draw “no salary or commission” in this fiscal year through March 2018 from telecom arm Reliance Communications (RCom), which is struggling to repay its loans amid sharply falling revenue and cash flows in a fiercely competitive market.
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In parallel, RCom’s management team will delay taking monthly pay by up to 21days each month till December 2017, India’s fourth largest telecom operator said in a statement on Wednesday.
“The decision is part of the company promoters’ commitment to strategic transformation programme” under which the telco is selling assets to raise funds to repay its debt which stood at just under Rs 45,000 crore at March-end.
The latest austerity moves at the group level come in the aftermath of RCom getting stung by multiple rating downgrades, its first annual loss and a plunging stock price. The RCom stock ended 1.4% higher at .Rs 18.30 on Wednesday, having touched record lows a day earlier.
“The moves are a bid to improve cash flows,” said a person familiar with the matter. Fitch Ratings recently said that RCom had poor liquidity at end-March 2017, with cash and equivalents of Rs 14 billion, insufficient to pay short-term debt of Rs 109 billion.
“RCom’s EBITDA declined by 30% to Rs 49 billion in the financial year to end-March 2017 (FY17), from Rs 71 billion in FY16, and is likely to be insufficient in FY18 to meet annual interest costs of Rs 35 billion and maintenance capex of Rs 15 billion,” it added.
ET had earlier reported that the telco had defaulted on its loan servicing obligations with more than 10 banks. It, however, recently managed to get a seven-month respite till December end on all its debt from bankers. The joint lenders’ forum (JLF) allowed RCom a “standstill” for the period, during which the company won’t need to service loans nor will it accrue interest on bank borrowings.
RCom though has said that pending “Aircel and Brookfield deals are targeted to close by September 30, subject to approvals”. Closure of these deals, it said, would reduce RCom’s debt by nearly 60%, or by Rs 25,000 crore.
The Union Cabinet may next week consider Canada-based Brookfield Infrastructure Partners’ Rs 11,000-crore investment proposal to acquire RCom’s stake in its telecom tower unit Reliance Infratel.
RCom also hopes to complete its deal to merge wireless business with Aircel by September 30, which will help reduce its debt by another Rs 14,000 crore.
Chairman Anil Ambani has said that if the company finds its outstanding debt unsustainable despite the sale of towers and the Aircel deal, it may consider offloading the remaining overseas business held under the Global Cloud Exchange banner, comprising undersea cables, or pare some of its 50% in Aircom — the JV with Aircel — or even sell its remaining 49% economic interest in the tower arm.
The telco’s troubles have spiralled amid an intensifying price war triggered by the entry of Reliance Jio Infocomm, owned by Anil’s elder brother Mukesh Ambani.
Even top telcos such as Bharti Airtel, Vodafone India and Idea Cellular have seen huge hits to their profitability as revenues plunged amid sustained costs related to expansion of 4G services.
Earlier this month, the annual report of Idea revealed that Kumar Mangalam Birla’s remuneration from India’s No. 3 telco in fiscal 2017 ended March 2017 shrank to a small fraction — Rs 3.30 lakh — compared with Rs 13.15 crore in the fiscal year ended March 2016, of what he earned the year before, after the telecom operator reported its first annual net loss as a listed entity.