Brotherly love adds bonus to Anil Ambani's debt-reduction plans

[MUMBAI] Billionaire Anil Ambani's plans to reduce debt at Reliance Communications Ltd by selling cellular towers and property are winning support from bond and stock investors. Signs of cooperation with his elder brother are only adding to the optimism.

India's fourth-largest carrier has signed a pact to sell its tower business, sold flats near Mumbai and plans to dispose of real estate in New Delhi. It is also looking to boost revenue by expanding a spectrum-sharing deal with Reliance Jio Infocomm Ltd, run by Anil's sibling Mukesh, India's richest man. The yield on Reliance Communications' 2020 dollar bonds slumped 62 basis points this quarter and its shares jumped 28 per cent.

Moody's Investors Service says the sale of tower assets can bring in as much as US$3.4 billion and advance long-standing attempts to pare debt. Signs that Anil will coordinate with Mukesh are reassuring in a market bracing for disruption as Jio plans a US$15 billion roll out of a fourth-generation wireless network.

"The tower deal will definitely move the needle on the leverage front if it goes through as planned," said Nidhi Dhruv, a Singapore-based analyst with Moody's. The pact with Jio will allow the company to "share resources without incurring the heavy capital expenditure that other incumbents have to employ," she said.

Reliance Communications, which has 43,379 towers across India, said Dec. 4 it signed a non-binding pact to sell the assets to private equity firms Tillman Global Holdings LLC and TPG Asia Inc. The parties have until Jan 15 to ratify the deal, the company said without disclosing a value. The Mumbai-based company had net debt of 398.9 billion rupees (S$8.5 billion) at the end of September, company reports show.

Reliance's 6.5 per cent dollar notes have advanced this quarter even as the average yield on bonds of Indian companies denominated in the greenback jumped 23 basis points in the period, JPMorgan Chase & Co. indexes show.

"The tower business is a cash spinner," Ajay Marwaha, a London-based director for investments at Sun Global Investments Ltd. "It isn't the core competence and the company is streamlining itself to become a client-facing entity which then translates into stable cash flow."

AMBANI, AMBANI

The Ambani brothers joined hands in September to share each other's resources for the 4G networks after India allowed operators to trade airwaves. They're in talks to expand the deal to nine regions from seven, people familiar with the matter said this month.

The pact is the latest sign of reconciliation between the siblings who split their father's empire a decade ago over a family feud. The start of Jio's services will also mark Mukesh's return to the telecommunications industry a decade after the group's phone business went to Anil when the conglomerate was divided between the two.

"This strategic cooperation and partnership between RJIO and RCom is a virtual consolidation in the telecom sector and I'm grateful to my elder brother Mukesh" for "unstinted support and guidance," the Press Trust of India quoted Anil Ambani as saying while addressing shareholders at his company's annual general meeting on Sept 30.

For Jio, the expanded accord will give it access to airwaves controlled by Reliance Communications, which are suitable for transmitting data at high speeds.

Reliance Communications, which saw profit in the three months ended September shrink to the smallest in four quarters, said Tuesday it is in talks to merge with smaller wireless carrier Aircel Ltd. Reliance raised 3.3 billion rupees selling residential flats near Mumbai, according to a filing Monday.

'THINGS ARE MOVING'

The company in November agreed to buy Russian firm AFK Sistema's Indian wireless unit in an all-stock deal to create a carrier with 118 million subscribers. The deal will make Reliance the largest holder of the 800/850 megahertz band for wireless 4G services.

One-year default probability for Reliance Communications has slipped to 0.33 per cent from 0.59 per cent on Sept 30, according to Bloomberg's default-risk model that considers factors such as a company's indebtedness, profitability, market value and stock volatility. Its shares rose 1.2 per cent to 86.65 rupees in Mumbai on Wednesday, taking their advance in the past month to 33 percent, the best performance on the 13-member S&P BSE Telecom index.

"They are on an asset-monetisation spree," said Naveen Kulkarni, an analyst at PhillipCapital India Pvt. in Mumbai. "They had been looking to sell some of these assets for a long time but things are moving now."

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