RCom risks insolvency after debt default

Indian telco's asset valuations are 'optimistic' and debt conversion plan is at risk due to share price decline, analyst warns

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RCom is facing the possibility of going through an insolvency process, having defaulted on debt repayments last week, according to the bond trading firm SC Lowy Financial HK.

An analyst at the company told Bloomberg that the valuations RCom has placed on its assets are "optimistic", and warned that insolvency looms if the telco fails to sell off assets at high enough rates.

"If they can't sell their assets at that valuations that they have guided to, then the more likely outcome is an insolvency process," the newswire quoted head analyst Mihir Chandra as saying.

RCom announced last week that it would default on repayments.

According to Bloomberg, its default on dollar bonds constituted the highest-profile debt failure since India passed its new bankruptcy code earlier this year,

RCom last month detailed plans to sell off key assets, including mobile spectrum and fibre infrastructure in a bid to pay off 170 billion rupees (€2.2 billion) worth of debt.

It has received expressions of interest from domestic and international telcos, and private equity firms, and says its asset monetisation plan is at an advanced stage, according to Bloomberg.

Its turnaround plan will also see it convert INR70 billion rupees worth of debt to 51% of its equity, essentially leaving lending banks with control of the company.

However, the recent slump in its stock price puts that portion of the plan at risk too, according to Chandra, who noted that the proposed conversion price is around INR24.8 per share, which is twice RCom's current trading price.

"It is unclear if the banks are going to agree to the proposed conversion price, and if they don't come to an agreement, there's a chance it sort of all falls apart," he said.