Will Anil Ambani's Reliance Communications now turn to plan E? India's No. 2 cellular carrier, which has tried at least four different and so far fruitless ways to raise capital over the past year or so, will on Tuesday seek permission from shareholders for the right to sell fresh equity.
Beset by a bruising debt load and falling profits, Reliance Comm could raise more than $1 billion with an issue of up to 15 percent of its existing share capital, based on its current share price, although it is not expected by company watchers to do so immediately.
Given the company's beaten-down stock price, such approval may be meant instead to keep an option open for when Ambani could fetch a higher price for shares in the company.
But having already explored various asset sales, the IPO of a unit and the sale of a stake in the firm, options are narrowing.
The company declined to comment on capital-raising plans.
Reliance Comm's net debt is more than four times forecast earnings before interest, tax, depreciation and amortisation for the year to March 2011, according to brokerage estimates.
"One thing is sure: they have to raise money," said Jagannadham Thunuguntla, head of equity at SMC Capitals.
"It's not only a question of valuation now, it's also a question of what route is available," he said, adding that selling shares to institutions would be easier than the asset sales and IPO plans it has also explored.
The good news for Reliance Comm is that conditions for raising equity are improving in India, with foreign inflows powering a rally in the benchmark Sensex that last week sent the index to 32-month highs.
The success of state-run Coal India's IPO next month, which at up to $3 billion would be the country's largest, will be key to determining investor appetite for big new issues.
"RCOM's main challenge is to get their gearing down," said Saurabh Mukherjea, head of Indian equities at Execution Noble.
"If the Coal India IPO has a strong response, that would give a number of Indian companies the comfort that there is substantial global appetite for Indian paper, and in the wake of that I think you will see a whole raft of big-ticket QIPs," or qualified institutional placements, he said.
Brokerage Anand Rathi said Reliance Comm's foreign currency convertible bonds (FCCBs) worth 16 billion rupees ($353 million) and 53 billion rupees are due for redemption in May 2011 and March 2012, respectively.
TOWER DEAL COLLAPSE
Reliance Comm, controlled by the younger of the billionaire Ambani brothers, has an unhappy recent dealmaking history.
In an unexpected blow, its agreement to hive off its towers business into a venture with India's GTL Infrastructure fell apart early this month. That deal, announced in June, would have cut debt by about $3.9 billion, or more than half.
A plan to sell up to 26 percent in the entire company, announced in June, has not yet yielded any takers.
Etisalat, the only carrier to have expressed interest in a possible investment, has said no deal will happen this year, and has not ruled out investing in rival Indian operator Idea Cellular.
Reliance Comm has said it is in talks with other financial and strategic investors for the tower business, which it has also considered taking public in recent years, receiving the go-ahead for an IPO from India's market regulator in January.
Last year it put its biggest global assets for sale for $3 billion but generated little interest, sources said early this year.
Reliance Comm shares, which jumped 37 percent in June on investor hopes that a deal was imminent, have given up roughly half those gains and trade 47 percent below their 52-week high.
FALLING PROFIT, DUELING NETWORKS
Reliance Comm has seen its profit fall in four straight quarters to June, with a cutthroat price war in a crowded market taking its toll.
Heavy spending is also weighing. Reliance Comm, predominantly a CDMA operator, last year completed the expansion of its smaller GSM business with a $2 billion investment. On the top of that, the company spent about $1.9 billion in an auction this year to win rights to provide high-speed third-generation services.
Anand Rathi Financial Services estimates the company had gross debt of 382 billion rupees as of end-June, of which 62 percent or 236 billion rupees is denominated in foreign currency and 44 percent (166 billion rupees) is due to mature in less than one year. Net debt, or gross debt minus cash balances, is estimated at 335 billion rupees after 3G licence payments.