Ericsson moves NCLT as RCom fails to pay for services

14 Sep 2017


Ericsson India, which has seven-year contract to operate and manage Reliance Communications' nationwide network, has moved an insolvency petition against the Anil Ambani-led telecom company over nonpayment of fees.

Ericsson India, the Indian arm of Swedish networking giant Ericsson, had in 2014 signed a deal to operate and manage Reliance Communications' nationwide network, but the latter has failed to meet contractual payments.

Ericsson India on Wednesday filed an insolvency petitions against Reliance Communications and two of its subsidiaries, Reliance Infratel and Reliance Telecom, over total unpaid dues of Rs1,150 crore.

The Swedish firm, in its filing, said the case would go before the National Company Law Tribunal (NCLT), the designated court for bankruptcy cases in India, on 26 September.

"Ericsson has done this as a last resort in order to resolve an issue regarding debt that Reliance Communications owes to Ericsson for services provided under a contract,"  the company said.

If the NCLT admits Ericsson's petition on Rcom's insolvency, it would disrupt the merger process between RCom and Aircel, which in turn would undermine Anil Ambani's plan to pare Reliance Communications' debt by about 60 per cent.

Ericsson had earlier, at a creditor's meeting, objected to the merger of Rcom with Aircel. However, the Mumbai bench of the NCLT admitted the merger petition in August and it is now due for hearing on 11 October.

Rcom's creditors China Development Bank, Standard Chartered Bank and HSBC Daisy Investments had also initially objected the merger petitions, but later consented to the merger proposal being admitted subject to certain conditions. RCom owes the Chinese lender close to Rs9,000 crore. The telco's gross debt stood at Rs45,000 crore in FY17, of which the company owes domestic lenders Rs25,000 crore.

RCom plans to repay Rs11,000 crore of its Rs45,000-crore debt from the proceeds of the sale of a majority stake in its tower business to Brookfield Infrastructure. Another Rs14,000 crore debt will move from RCom's books to the joint venture with Aircel.

Sources said RCom plans to service the yearly interest payments of around Rs1,500 crore on the remaining debt from an expected revenue of Rs8,000 crore after the merger and the sale. The telco received the approval for the merger from the Securities and Exchange Board of India.

According to the merger terms, both RCom and Aircel's controlling firm Maxis Communications will hold an equal stake of 50 per cent each in the merged entity.

RCom said in a regulatory filing on Wednesday that it ''intends to challenge the said petitions''.

Debt-laden Reliance Communications earlier this year said that its lenders had agreed to a strategic restructuring plan under which it will get a 7-month standstill to service loans amounting to Rs45,000 crore.

RCom chairman Anil Ambani had tried to convince shareholders saying that the company's debt burden will be reduced to Rs20,000 crore with two deals by September, before the December deadline given by the lenders.

Besides, he said, RCom will consider strategic sale of global business to further pare debt.

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