RCom faces insolvency proceedings on Ericsson plea; Jio deal in jeopardy
16 May 2018
The National Company Law Tribunal on Tuesday ordered that wireless carrier Reliance Communications Ltd be placed in insolvency proceedings, jeopardising its proposed $3.7 billion asset sale to Reliance Jio Infocomm Ltd.
The Mumbai bench of the NCLT accepted a petition from the Indian unit of network-equipment maker Ericsson AB, which is seeking to recover Rs1,160 crore ($170 million) in unpaid dues from the telco controlled by Anil Ambani.
Shares of RCom tumbled as much as 18 per cent on the BSE this morning, while its 2020 dollar bonds plummeted the most in more than seven months.
Ericsson had signed a seven-year deal in 2014 to operate and manage RCom's nationwide telecom network but has not been paid the bill. Last September, the Swedish company had filed a petition in the NCLT's Mumbai bench seeking liquidation of the telecom operator to recover the amount.
The court order sets back RCom’s planned sale of airwaves, towers and fibre assets to Reliance Jio, the phone company owned by Ambani’s older brother Mukesh, who is India’s richest man. The decision on RCom, which is seeking to reduce its $7-billion of debt load, comes after Aircel Ltd filed for court protection from creditors in February as a bruising tariff war eroded earnings (See: With no turnaround prospects, Aircel files for bankruptcy
The tribunal admitted the petition, which could result in delaying RCom's plans to sell assets to lighten its debt load.
The company has postponed to 19 May its board meeting scheduled to be held on Tuesday to approve audited financial results for the quarter and year ended 31 March.
Sistema Shyam Teleservices offloaded over 1.5 crore shares of the company, lowering its holding to 4.43 per cent.
RCom can appeal the verdict with a tribunal in New Delhi. The company and two of its subsidiaries will decide on the next course of action after studying the detailed order, RCom said in an exchange filing.
The decision means RCom will be placed under a court-appointed resolution professional, who will have as much as 270 days to work out a debt repayment plan or liquidate the firm. The latter scenario would result in what could be one of India’s biggest bankruptcies and conclude the downfall of what was once the country’s second-largest phone operator.
A two-member panel headed by Justice B S V Prakash Kumar said on Tuesday that an insolvency-resolution professional will be decided on in a day or two. If the company is sold under the insolvency process, Jio might have to clear a legal hurdle to bid for RCom. Recently implemented bankruptcy rules bar takeovers of stressed assets by entities related to the defaulting promoters. The rule is aimed at blocking back-door entry by delinquent owners.
Jio has tower, fibre and airwaves sharing pacts with RCom and could suffer some loss of competitiveness if a rival were to secure the beleaguered operators’ assets.
RCom is the second-largest listed company by assets in Anil Ambani’s business empire. Besides the phone carrier, Ambani controls Reliance Power Ltd, Reliance Capital Ltd, Reliance Naval & Engineering Ltd, Reliance Infrastructure Ltd, Reliance Home Finance Ltd and Reliance Nippon Life Asset Management Ltd.
India never had formal bankruptcy rules until they were enacted into law in May of 2016. That empowered the central bank and local lenders to push companies into insolvency and accelerated their ability to recover bad loans. The law is now being tested through bitter court battles.