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Reliance Communications: Waiting to Exhale

Reliance Communications Ltd (RCOM IN) (RCOM) missed interest payments on its USD300m bonds (RCOMIN 6.5% 6Nov2020s) on 6-November-2017. RCOM was then dragged into legal battles by lenders, creditors, minority shareholders, and bondholders. RCOM has managed to reach settlement agreements on various legal cases that were blocking the asset monetization program to repay the INR460bn debt (See Resolved legal battles section). As a result, we expect the sale of the wireless business to Jio and an orderly sale of most of its other assets in the next 3-6 months.

The resolved legal battles led to a price recovery of RCOMIN 20s from mid 30s to 58 cents last week before dropping back to 56 cents (ask) on a dollar at the time of this report. We estimate a recovery value of RCOMIN 20s at 58.5 cents on a dollar, which is higher than the bond price of 54 cents (bid) at the time of this report.

The 2.5-point upside is not attractive enough for us to recommend buying the bonds. Selling on the lack of information on various terms of agreements between RCOM, banks, and bondholders to forego 4.5 points is also too late after the recent rally. In addition, we do not believe this is the time for the bondholders who are in the discussion with RCOM to sell the bonds either. As such, we initiate our coverage on RCOMIN 20s with a NEUTRAL recommendation. We believe the bonds should not be bought by bondholders who cannot stomach volatility and have no knowledge of the on-going liquidation discussion.

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