The topic of assignment is to study the debt crisis management and impact of un-hedged exposure aspects of RCom – a major Telecom Service provider in India. RCom has entered in high-debt levels i. e Rs 35000 crore and it has been further compounded because of the steep depreciation of the rupee, where nearly three-fourths of Loan is in foreign currency. RCom has implemented refinancing strategy for the loan outstanding by Industrial and Commercial Bank of China (ICBC), China Development Bank (CDB), Export Import Bank of China (EXIM), and other banks.
This strategy will be benefited from extended loan maturity of seven years and attractive interest cost of about 5 per cent and the loan would be used for refinancing the entire redemption amount of FCCB. In this assignment, I have studied the financial crisis management part which is managed by the company with some strategic move of loan refinancing and a smart move of fund raising through listing of Flag telecommunication at Singapore and set an indicative price range for the Singapore initial public offering of its undersea cable unit (Flag Telecommunication) that could raise as much as $1 billion and help to reduce its debt load.
I have also studied the impact of heavy debt on company’s financial credit worthiness and impact of rupee devaluation on overseas loan taken from China and loss incurred due to huge exposure of un-hedged transactions. Reliance Communications Limited is the flagship Company of Reliance Group, one of the leading business houses in India. Reliance Communications is India’s foremost and truly integrated telecommunications service provider. The Company, with a customer base of 152 million as on March 31, 2012 including over 2. million individual overseas retail customers, ranks among the Top 4 Telecom companies in the world by number of customers in a single country. Reliance Communications corporate clientele includes over 35,000 Indian and multinational corporations including small and medium enterprises and over 800 global, regional and domestic carriers. Reliance Communications has established a pan-India, next generation, integrated (wireless and wire line), convergent (voice, data and video) digital network that is capable of supporting best-of-class services spanning the entire communications value chain, covering over 24,000 towns and 600,000 villages.
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Reliance Communications owns and operates the world’s largest next generation IP enabled connectivity infrastructure, comprising over 277000 kilometers of fiber optic cable systems in India, USA, Europe, Middle East and the Asia Pacific region. Assignment analysis and study RCom has entered in high-debt levels i. e Rs 35000 crore because of high capital investment for changes in industry landscape, rapid emergence of newer business opportunities like 3G, mobile broadband data, etc, and evolving regulatory framework.
RCom continues to actively evaluate and execute the most relevant organization structure to address the market opportunity. In the 2 years, RCOM has taken several measures to reduce its mounting debts. 1. Reliance Communications has secured loans from a host of Chinese banks to refinance $1. 18 billion worth of outstanding foreign currency bonds due for redemption. The deal has provided RCOM a major support, where company is trying for more than a year to sell its telecoms tower unit to cut the company’s about $6. 5 billion debt.
Reliance Communications said Industrial and Commercial Bank of China, China Development Bank Corp, Export Import Bank of China and other banks were funding the refinancing of the outstanding foreign currency convertible bonds (FCCBs).
The company said it would benefit from extended loan maturity of seven years and “attractive” interest cost of about 5 percent, sending its shares up as much as 5. 7 percent in a Mumbai market that rose 1. 5 percent. The FCCBs were issued in February 2007 when the Indian markets were booming, with a conversion price of 654 rupees a share.
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Cut-throat competition among India’s mobile phone operators has since hit earnings and shares have plunged. Reliance Communications shares were trading around 90 rupees, a fraction of the conversion price. Reliance Communications has talked with China Development Bank for a syndicated loan to redeem the bond. China Development Bank arranged loans worth $1. 93 billion for Reliance Communications, which the company used to finance radio airwaves it acquired during a costly 3G auction, as well as for the purchase of equipment. With its bruising debt load and a ferociously competitive 15-operator arket, Reliance Communications has reported eight straight quarters of falling profits. Reliance communications has tried once again and talked with U. S. buyout giants Carlyle Group and Blackstone Group on a deal for the towers business which could be worth more than $3 billion, but unfortunately the deal is not closed to completion. 2. RCom has filed a prospectus with the Singapore Stock Exchange and plans to divest as much as 75% stake in Flag Telecom to raise about $1 Billion- Reliance Communications was looking to secure a leasing agreement for its towers from Reliance Industries, before pressing forward with a tower sale.
It has also not settled. The efforts to sell a majority stake in Reliance Infratel are still to fructify, in the mean time company has decided the listing of Reliance Globalcom. , where the Reliance Globalcom can help the company to raise Rs 50 billion-Rs 65 billion by divesting 75 per cent stake in its submarine cable business. The issue has opened at a price range of $1. 09-$1. 32 per unit. The bankers for the issue include Deutsche Bank, DBS of Singapore, Standard Chartered and the Industrial and Commercial Bank of China.
Reliance Globalcom will be listed under the business trust structure. Post the listing, the company’s submarine assets and business will continue to be controlled by the existing management. RCOM will continue to hold the remaining 25 per cent equity stake. A. Background of Reliance Globacom Reliance Globalcom was formed in 2003 as a result of an amalgamation of Flag Telecom with the Reliance Group for $207 million. Flag, which had emerged from bankruptcy proceedings and had been on the block for over a year before being acquired by Reliance, was reeling under losses.
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However, the acquisition gave Reliance a foothold in the global business arena with over 50,000 km of submarine cables, thereby ending Tata Communications’ monopoly in the undersea cable field. From 2005, Flag embarked on an expansion path and finally broke even in September 2006. It introduced several higher-value-added products, including international private leased circuits (IPLCs), virtual private networks (VPNs) and Ethernet services. This accelerated the company’s revenue growth and increased its profitability.
Flag Telecom later came into the fold of RCOM, led by Anil Ambani, after the Reliance Group’s businesses were split between the brothers, Mukesh and Anil Ambani. In 2008, the company was integrated into RCOM’s international operations under the Reliance Globalcom brand. B. cable network of Flag Telecom Reliance Globalcom owns the largest private cable network in the world with over 277,000 route km of fibre optic cables. This includes 68,000 km of subsea fibre.
Through strategic relationships with over 750 network service providers across the world, Reliance Globalcom provides assured connectivity to 163 territories worldwide. This makes RCOM a carrier’s carrier as it provides global connectivity solutions to carriers and internet communities through its submarine cable system. The company has cable landing tie-ups across 46 locations in 26 countries with 31 partners. The company’s global backbone spans four continents, connecting key business markets in Asia, Europe, the Middle East and the US.
The network consists of five cable systems – FLAG Europe Asia (FEA), FLAG North Asian Loop (FNAL), FLAG Atlantic 1 (FA-1), FLAG Alcatel-Lucent Optical Network (FALCON) and HAWK. The company also owns and operates a low latency, global MPLS-based IP network, which connects most of the world’s principal international internet exchanges. FNAL represents a part of the 9,800 km North Asian Loop submarine, an intra-Asia submarine cable system that links Japan, Korea, Taiwan and Hong Kong in a ring configuration. The entire FNAL submarine cable system consists of six pairs of fibre, three of which are owned by Reliance Globalcom.
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