The strategic debt restructuring (SDR) plans of Reliance CommunicationsBSE -11.03 % appear to have hit a roadblock, with the company and its lenders sparring over the treatment of loans given by group entities to the embattled carrier, four bankers familiar with the developments told ET.
Banks under fire from the regulator and the government for treating defaulters with kid gloves are also reluctant to convert apart of their debt into equity at a steep premium to the current market price on concerns over future probes, said those people, who did not want to be named.
“In the last meeting, the company wanted banks to accord priority status to the loans RCom has taken from the group companies.
Two of the 27 banks in the consortium have declined this proposal, while the rest of the banks will give their decision in the next meeting,” said one of the people cited above. He declined to mention the amount of loans from group companies, saying the number is not yet final.
At a recent meeting with lenders, the company sought approval for priority status to the loans it had raised from the promoter group, said those bankers.
The company is reeling under a debt burden of more than Rs 34,844 crore, and has been in negotiations with the lenders to restructure loans. The company had proposed to dispose off assets such as telecom towers, but such talks with Canadian fund Brookfield collapsed. Its proposal to merge with Aircel also came unstuck.
Soon after the merger deal with Aircel was called off, Reliance Communications suggested that lenders convert Rs 7,000 crore of debt into equity, and proposed to repay Rs 10,000 crore debt by selling some assets. Lenders will have 51% stake in the company on conversion of the debt into equity.
The company has also proposed the conversion at Rs 24.71 toRs 24.73 a share, the price being arrived at according to the formula prescribed by the Reserve Bank of India (RBI) on SDR.
Lenders, however, are opposed to it since the shares of the company have since fallen to Rs 14-15 a share. Conversion at this rate will result in huge mark to market loss for the lenders.
“Valuation is a huge roadblock,” said another banker. “Bankers are not very enthused because it is not at market rate. At least, there should be scope for appreciation.”
The company has 27 lenders, including Life Insurance Corporation, ICICI BankBSE 0.50 %, State Bank of IndiaBSE 2.78 %, Deutsche Bank, Axis BankBSE 1.38 %, and Yes BankBSE 0.56 %.
The company has told bankers that the offered price was in line with what is prescribed by the regulator.
It said that the Rs 24.71to Rs 24.73 proposal was according to the central bank formula, which is the average of the closing price during the ten trading days before the June 2 reference date on which the SDR was invoked.
The second option of converting debt into equity, as per the RBI formula, would be the break-up value of the company, which according to it was Rs 97 a share.
But bankers say that material developments such as the collapse of the deals with Aircel and Brookfield have made all other assumptions irrelevant.
