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<keyword id="46907" type="CITY" weightage="100" keywordseo="Reliance-communications">Reliance Communications</keyword> (RCom) has ‘respectfully’ rejected the latest ratings downgrades that rating agencies Moody’s and Fitch did a day earlier, which led to the shares of the telco falling nearly 4% at close. The fall in shares accelerated the firm's losses in the past month to around 38%. “We respectfully disagree with the recent rating actions by both these agencies, and believe that these rating actions do not reflect the servicing track record of the company,” said a statement from RCom, owned by <keyword id="9171" type="PERSON" weightage="100" keywordseo="Anil-Ambani">Anil Ambani</keyword>. It added that the recent pact with its lenders, which allowed it a breather for seven months in terms of loan repayments, was viewed negatively on “certain technical grounds” by these rating agencies. “In actual fact, the same (pact with lenders) directly addresses their (ratings agencies) key concerns about the short term liquidity situation,” the telco explained. RCom argued that the rating agencies skipped giving due credit to the advanced stage of the two ongoing deals that it’s involved with, one being the merger of its wireless operations with Aircel and the other being the merger and sale of its stake in its tower unit. These deals would, as stated by the company, deleverage the company’s balance sheet by around $4 billion in the coming months. It was on Tuesday that the International ratings firms Moody's Investors Service had cut its RCom rating to Ca from Caa1 which suggests that the debt is highly speculative and would most likely default, with some prospect of recovery of principal and interest. <keyword id="125045" type="CITY" weightage="100" keywordseo="Fitch-Ratings">Fitch Ratings</keyword> too lowered RCom’s rating to RD from CCC, saying that the situation constituted a restricted default, given the multiple waivers or forbearance periods that have already been extended in parallel following a non-payment event. (Image source Quint)

RCom refuses to accept Moody’s and Fitch rating downgrades

<ul><li>The 14 year old battle on defining ADR will cost Airtel and Vodafone-Idea over ₹50,000 crore in penalties and interests.</li><li>The order also technically affects 13 other telecom companies which have ceased to exist.</li><li>While a few filed for bankruptcy, others have simply shut down operations. </li></ul>It is not just Bharti Airtel and Vodafone-Idea that are affected by the Supreme Court order which went in favour of the telecom department. Ideally, other than these two companies – which were three earlier–there were 13 others who could have been affected by the order, if they did survive. Fortunately for them and unfortunately for DoT – they did not. As much as ₹38,000 crore that the telecom department is owed can never be recovered, according to a report by Spark Capital. “Recovery is unlikely from bankrupt companies given banks are already taking a haircut on such telcos,” Nitin Soni, director of corporate at Fitch Ratings told Business Insider India. One of such is Reliance Communications which is now undergoing bankruptcy proceedings. It is the only telecom company for whom the change in definition of Adjusted Gross Revenue (ADR) is known along with penalties---at over ₹16,000 crores. However, since this order came much after it went into bankruptcy, there is no way could recover it. Aircel has been fighting a losing battle with its own debt and inability to keep up its operations. Just last year, the company became defunct and filed for bankruptcy. But the company was once the market leader in Tamil Nadu and also expanded to 6 other circles. But it was hit by a controversy over its takeover by Malaysian company Maxis Communications and was heavily investigated by the CBI. By 2012, it had started scaling down its operations owing to excessive competition among other hurdles. It had tried to merge itself with many operators including Sistema, Airtel and RCom but those deals never took off. The next in line is BPL Communications which unlike other telecom companies, died a natural death. Its held licence only for the Mumbai circle which expired in 2014. While it did consider re-applying for it and also merging itself with Airtel, that was not to be. It simply stalled operations and allowed its users to port out. DoT is getting nothing from it, as no traces of this company exists now. There are many others which have been protesting against DoT’s move to charge ADR on all the revenues of a telecom company instead of those which centric to telecom operations. Some of them are listed entities like Tata Teleservices Maharashtra, and others like Tata Teleservices which also includes Tata Docomo and Tata Indicom. But these companies have since merged with Airtel and the extent of their liability and ability to pay up is not known.

Airtel and Voda-Idea could pay DoT, but what about ₹38,000 crore from defunct telcos?

Intense tariff war and high taxes are expected to squeeze Indian telecom operators, leaving a gaping Rs 1,20,000 crore deficit between the industry's earnings and its debt/payment commitments this year, says debt-laden Reliance Communications, according to PTI. With annual interest payments, loan re-payment obligation, spectrum-related outgo and capex expected to add up to a Rs 1,62,000 crore tab, the operators could find it tough to metheir debt and payment needs with Rs 43,000 crore of EBITDA or operating profits in 2017-18. The earnings before interest, tax, depreciation and amortisation (EBITDA) is a measure of a company's operational performance. "The reduced EBITDA (Rs 43,000 crore in FY18) of the industry is insufficient to cover the existing debt obligations and deferred payment commitments," RCom cautioned in its latest investor presentation. The gross liability of the telecom industry on account of debt as well as payments related to radio waves amounted to a whopping Rs 7,75,000 crore, as on March 31, 2017. Stating that 2016-17 recorded the first-ever decline in industry's revenue, RCom said the combined revenue went down to an estimated Rs 2.10 lakh crore. This resulted in fall in EBITDA by Rs 12,000 crore, meaning significantly lower operating cash flows for telcos. "Further in FY18 (this fiscal year), the revenue is estimated to decline further by Rs 25,000 crore," RCom said referring to the industry's weak financial metrics. RCom Chairman <keyword id="9171" type="PERSON" weightage="20" keywordseo="Anil-Ambani">Anil Ambani</keyword> last week stepped in to restore investor confidence after the company's shares were hammered in the wake of poor fourth quarter and FY17 showing, and debt downgrade by rating agencies including Moody's, Fitch, ICRA and CARE. In a rare public appearance, he said that the debt-laden RCom has been given a breather of seven months to service its debt. This is a part of a strategic debt restructuring (SDR) programme that a consortium of lenders has invoked for the company, that is saddled with Rs 45,000-crore debt. Like its larger rivals, RCom too has been hit hard by intense price war unleashed by <keyword id="6354504" type="UNKNOWN" weightage="20" keywordseo="Reliance-Jio">Reliance Jio</keyword>, owned by Anil Ambani's elder brother and India's richest man <keyword id="3820" type="PERSON" weightage="20" keywordseo="Mukesh-Ambani">Mukesh Ambani</keyword>. RCom's presentation noted that the voice revenue per minute for the industry has seen a 25 per cent decline in the last two quarters, while data revenue per MB have fallen by 40 per cent. It cautioned that the sector could be staring at 30,000 to 40,000 job losses over the next 12-18 months, compared to 10,000 job cuts last year. Underlining the high incidence of taxation, RCom said telecom is "one of the highest taxed sectors" of the Indian economy and that no other country in the world has such high tax burden on telecom sector. The cumulative tax incidence adds up to about 33 per cent (of revenue) in India compared to 20 per cent in EU, 22 per cent in China and 17 per cent in the US. Incidentally, India, with over 1.16 billion mobile users is the second largest telecom market in the world, after China. Noting that the government has set up a panel to resolve the financial crisis in the telecom sector, RCom said industry wants deferment of payment liability with respect to levies (imposed by the <keyword id="150664" type="ORGANIZATION" weightage="20" keywordseo="telecom-department">Telecom Department</keyword>) and spectrum charges by three years. The industry also wants a 3-year moratorium on service tax/GST, for short term cash flow relief. Other demands include reduction of licence fee to five per cent (from 8 per cent), and flat one per cent spectrum levy. Interestingly, at a time when telecom regulator is reviewing the call connect charges, RCom said that termination rate should be discontinued, given the free or low voice tariffs environment.

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RCom refuses to accept Moody’s and Fitch rating downgrades

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Airtel and Voda-Idea could pay DoT, but what about ₹38,000 crore from defunct telcos?

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Intense tariff war is bleeding telecom operators. Here’s the proof

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