Tower sale will help RCom’s financial profile: Moody’s

Reliance Communications' deal to sell its tower business when completed, will substantially improve the telecom major's financial profile, Moody's Investors Service said on Monday.

On 4 December, the Anil Ambani-led firm said it has signed a non-binding pact to sell its cellular tower business, Reliance Infratel, to private equity firm Tillman Global Holdings LLC and TPG Asia Inc, in an estimated Rs30,000 crore deal, to pare debt.

Reliance Infratel Ltd has 43,379 towers across India.

RCom, the parent firm of Reliance Infratel, intends to use the proceeds to cut net debt by 75 per cent from Rs39,894 crore to under Rs10,000 crore.

"RCom's announced transaction to sell its tower assets, held under its subsidiary - Reliance Infratel (unrated) - when consummated will substantially improve the company's financial profile and support its Ba3 rating and stable outlook," Moody's said in a statement.

The transaction will enable the company to meet its deleveraging target of around 4.0-4.5X for its rating level before the fiscal year ending March 2017, it added.

Moody's said a certain debt may be transferred to the new tower company and RCom will use the remaining sales proceeds to reduce balance sheet debt.

"While RCom's operating costs for its towers will decline, its rental costs for leasing back the towers will increase its consolidated lease expense, which we capitalise and add to gross debt," Moody's assistant vice president Nidhi Dhruv said.

However, given the lease rentals for towers in India are relatively low, there will be a substantial reduction in RCom's adjusted gearing, Dhruv added.

"Cash proceeds from the sale of towers will also alleviate liquidity and refinancing pressures for RCom. However, we note that the company needs to obtain approvals from banks and bond holders to carve out the tower assets from the respective collateral packages," Dhruv, also Moody's lead analyst for RCom, said.

Moody's said any technical, procedural or regulatory constraints on the proposed transaction, or delays in announcing the final transaction may put downward pressure on its rating of the company.