RCom to raise $500 million through sale of offshore bonds

RCom to raise $500 million through sale of offshore bonds
MUMBAI: Reliance Communications (RCom) plans to raise about $500 million (Rs 3,420 crore) through an offshore bond sale, as the Anil Ambani-controlled company looks to invest in improving its offerings in an increasingly competitive telecom market.

RCom is in the process of finalizing investment bankers to help it raise the funds and marketing road shows are expected to start soon, multiple sources with direct knowledge of the plans told ET.

“We will be finalizing bankers to the issue within a few days,” said one of the sources. The road shows will start by the middle of this month and the aim is to launch the issue as early as possible, said the source. A spokesperson for RCom declined to comment on the matter.

Sources said the proceeds from the bond sale will be used to enhance the company’s operations and improve its offerings in a market where the entry of Mukesh Ambani’s Reliance Jio Infocomm has affected the fortunes of most operators. Larger rivals of RCom, Bharti Airtel, Vodafone and Idea Cellular, are offering competitive tariffs in an effort to match Jio’s aggressive pricing strategy.

RCom, which, is struggling with a huge debt pile, has merged with smaller rival Aircel and has plans to sell its tower infrastructure business. It has an infrastructure sharing deal with Jio.

RCom has more than Rs 44,000 crore of debt as on March 31, 2016, according to Bloomberg data. In October, it signed a non-binding deal to sell a 51 per cent stake in its telecom tower firm, Reliance Infratel, to Canadian investment manager Brookfield Asset Management for Rs 11,000 crore.

According to analysts, capex for telecom operators is expected to be higher in the next two to three years. Wireless capex, excluding on spectrum, for the top 3 telcos in fiscal 2016 was twice their capex two years earlier, Goldman Sachs analysts Manish Adukia, Piyush Mubayi and Nikhil Bhandari wrote in a note on November 7.

“While capex for the top 3 telcos is unlikely to pick up meaningfully vs FY16 levels, it would remain elevated for the next 2-3 years to support the 4G rollout,” the note said.

The company is going for an offshore sale when local rates are heading lower following demonetization of high-denomination currency notes. ET reported on November 21 that many companies are rushing to borrow cheap money from the local market.
Dealers expected up to Rs 20,000 crore worth of bond sales within weeks. In the past one month, the benchmark government bond yield has tanked about 40 basis points, pushing prices up as investors expect more rate cuts amid surplus cash availability in the banking system. But, some still prefer to go offshore despite US Treasury bonds rising, a move that increases borrowing costs.
The size of the bond issue is often the key here, as a shallow domestic corporate bond market may not have capacity to absorb such demand.

“Given India’s excellent macro story of low fiscal deficit and low current account deficit, long-term investors like pension funds and insurance companies would like to invest in Indian papers,” said Harihar Krishnamoorthy, treasurer at FirstRand Bank.

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