The deal with Brookfield, according to the RCom management, completes the company’s four-pronged strategy. The first step was merger with MTS, which brought fourth-generation (4G) LTE spectrum, valid till 2032.
The second was the spectrum sharing and trading agreement with Reliance Jio, which includes access to the national 4G LTE network on the spectrum-efficient 850 MHz band.
The merger with Aircel, which helped it become the number three player, as well as reduce the company’s debt by a further Rs 14,000 crore, was third. Finally, the tower deal.
While the Aircel deal will reduce the debt from Rs 42,000 crore to Rs 28,000 crore, the tower deal will bring it down further to about Rs 17,000 crore.
It is looking at monetising its land assets to the tune of Rs 5,000 crore by the coming March, leaving it with net debt of Rs 12,000 crore at the end of this financial year.
Sources indicate the company could also look at selling its fibre assets for about Rs 7,000 crore. If it does, the company will be left with the Reliance Global Cloud Xchange (GCX) business which comprises data centres, the Indian enterprise business and the undersea cables business, as well as the 50 per cent stake in the merged wireless business with Aircel.
Some analysts say that after the asset sales, the ration of net debt to operating earnings, 5.5 at the end of March 2016, will come down to half that number, with the Reliance GCX business' operating profit estimated at Rs 1,800 crore.
However, Fitch Ratings on Tuesday downgraded RCom’s long-term foreign and local currency issuer default ratings to ‘B+’ from ‘BB-’.
Nitin Soni of the ratings agency believes the plan to sell 51 per cent of Infratel (the tower assets) for $1.6 billion and use the proceeds to pay down debt will not reduce financial leverage sufficiently to retain ‘BB-’.
RCom would not have $200-220 million in potential operating earnings from Infratel and as it is left with only a 49 per cent economic interest, it can give credit only to dividends received.
However, Fitch does not expect Infratel to distribute any meaningful dividends during FY18-19.
As RCom will not have access to cash flows from the wireless JV (Aircel) or the tower businesses, and dividends are unlikely any time soon, cash flow of GCX is critical to the company servicing its debt. Both the wireless and tower businesses are reeling under hyper competition and are unlikely to yield much in the near term.
RCom might, thus, have to wait longer to monetise its 49 per cent economic interest in the tower business. While the debt deals are positive, investors will only value the GCX business, as lack of operational control and poor sector dynamics will mean a huge discount to its stakes in both the wireless and tower businesses.