Ambani dials up the pain in sibling rivalry

India's Ambani brothers are never far from drama. An upstart telecom operator led by elder brother Mukesh, the country's richest man, has upended the industry. Younger brother Anil's Reliance Communications is suffering especially. The pain has some way to run.

RCom shares have roughly halved since April 5, meaning the telecom operator and owner of undersea cables now has a market capitalisation of barely $1 billion. Meanwhile, Mukesh's Reliance Industries has become one of India's biggest companies, using oil money to bankroll a $30 billion rollout of Jio, the trouble-making telco.

Jio’s aggressive entrance, offering services free for months, has slashed industry profits. Rcom on Saturday reported its first full-year loss, customers are leaving, and its so-called debt service coverage ratio is now below one times after factoring in principal repayments.

Investors are nervous. RCom’s shares crashed on Monday and its 2020 bonds are trading at barely 72 cents on the dollar. Restoring financial health depends on two moves: deconsolidating the wireless telecoms business in a 50-50 joint venture with rival Aircel and then selling 51 percent of its towers unit to Canada's Brookfield. Like Vodafone's local merger with Idea Cellular, RCom’s reshaping is a matter of survival.

These deals will reduce net debt by more than half to about $3 billion but will not close until a dispute relating to Aircel's ultimate backer, Malaysian tycoon Ananda Krishnan, is resolved. Lenders must consent too. RCom also plans to sell properties, but it is unclear if the group’s remaining subsea cable and enterprise business can comfortably service the leftover debt.

There are still a few more levers to pull. A much hoped-for rescue by Mukesh, through a merger with Jio which is already piggybacking on part of RCom's network, may be years off, and would probably only be done on punitive terms. But RCom could sell the rest of its towers business - it has tried before to offload the entire unit.

New Delhi has been part of the problem, running spectrum auctions that put profit ahead of sector sustainability and letting Jio sidestep rules on predatory pricing. The government could now help clean up the mess by giving operators longer than eight years to pay for spectrum, or allowing banks to roll over loans. For now, only one Ambani is winning.