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According to the new report by rating firm Fitch Ratings, Anil Ambani owned Reliance Communications will gradually exit from the wireless voice business and significantly scale down its operations due to intense competition.
"We expect the restructuring to transform RCom from an integrated telecom company to a business-to-business bandwidth services provider with three segments - GCX, enterprise, and data center business. However, the post-restructuring Rcom will not benefit from GCX's cash flows, which are largely ring-fenced under its $350 million senior secured bond documents," Fitch said.
The firm also expects GCX's end-September 2017 cash balance to fall closer to $40 million - the threshold below which we will consider negative rating action."
"We expect its indefeasible right of usage sales to be below $25 million during the six months ended September 2017 - lagging management's expectations of $64 million for the full year to 31 March 2018. GCX's undrawn revolving credit facility of $30 million has lapsed. Its only debt is the $350 million bond, which is due in August 2019 and the next coupon payment is due in February 2018.
Fitch said that the ratings on Reliance Communications and its wholly owned subsidiary Global Cloud Xchange would be unaffected by Rcom's debt restructuring plan. "We expect to re-rate Rcom once there is clarity on the execution of the sale of its assets and the capital structure of the reorganized entity. GCX's ratings are driven by its relatively weak trading position and its liquidity; reduction of its cash balance to below $40 million could lead to negative rating action," the agency said.
Under the debt restructuring strategy, RCom plans to convert debt of Rs 70 billion into equity, sell spectrum, tower, and fiber assets for Rs 170 billion, and sell real estate of Rs 100 billion.
To recall Reliance Communication recently said that it has decided to adopt a 4G focussed strategy for profitable growth of its wireless business.
The company said that "As already announced on 1st October 2017, RCOM has decided to adopt a 4G focussed strategy for profitable growth of its wireless business. Accordingly, RCOM will be optimizing its 2G and 3G footprint, and related infrastructure and human resources, with effect from 30 November 2017."
"The Company's 4G-led strategy will be executed, as at present, on the back of capital-light access to India's most extensive 4G mobile network, through already operational spectrum-sharing and ICR arrangements with Reliance Jio, the company further said.