The Swedish telecom equipment maker Ericsson filed a petition in National Company Law Tribunal which could cause the Insolvency authorities to scrape Rs 18,000 crore worth of debt by selling Reliance Communication’s assets to Reliance Jio Infocomm. Three petitions were accepted by the NCLT against the Anil Ambani-led telco on Tuesday. After Aircel, RCom can be the next company to get hit by the blow of bankruptcy. Under the insolvency and bankruptcy code, the company which was once the second largest telco in the country can come down.
As reported by ET, Anil Kher, the senior lawyer who is representing Ericsson in the matter said: “All three petitions have been admitted and Ericsson has to suggest the name of the interim resolution professional (IRP) tomorrow (Wednesday) morning.” To look into the matter get to the bottom of it, a two-member panel headed by Justice BSV Prakash Kumar said that an IRP would be nominated. Ericsson which wants to recover its Rs 1,150 crore worth of dues is expecting an order on Wednesday. Also, on the same day, RCom is expected to knock on the doors of National Company Law Appellate Tribunal to counter the NCLT order, as people knowing about the matter said.
RCom has been laden with some serious debt which values around Rs 46,000. This happened after the telco could not survive competition from Reliance Jio. Post that, RCom has plans to merge with Aircel, something which couldn’t materialise because of the legal hurdles in the merger. However, RCom did decide to sell its spectrum, towers, fibre and switching nodes to Jio in late December, to repay its lenders. That deal seems to be in a fix now, given the current scenario. According to the current situation, no bank, or creditors can get anything from RCom, since the company is forbidden from selling its assets.
SC Likely to be Involved
Reliance Jio, on the other hand, refused to make any statements when questioned by ET regarding the NCLT’s decision on Tuesday. A person aware of the ongoing remarked “Now they cannot do any business, litigation or sell any of its assets… at times, there are orders that directors cannot leave the country,” speaking about RCom.
RCom said, “The companies will decide the next course of action after studying the orders.” Reliance Communications and its subsidiaries will act on the NCLT’s order from the Mumbai bench after the officials discuss on the Ericsson petition. The company is likely to go through debt resolution under the IBC.
Catching the whiff of the recent developments, the impact of the news was seen on the stock market as Reliance Communication’s stock fell 7.8% on the BSE even though the NCLT order was announced after market hours. As per the legal counsel’s statement, the matter is likely to climb up to the Supreme Court since neither sides seem to be backing off.
An IRP will be set up which will take full control of Reliance Communications and will look into levelling the debt of the company. If no solid development is seen over a 270-day period, the company will likely be liquidated to meet the demands of creditors and banks.
Jio’s Bid for RCom
There is still a messy picture of the spat between Reliance Jio and RCom since there isn’t a straight path for Jio to bid on RCom’s assets because the Section 29A of Insolvency and Bankruptcy Code forbids the related promoters to participate in the bidding.
Manoj Kumar, who is the head of M&A transactions at Corporate Professional remarked “In RCom and Jio’s case, this may be allowed since the companies have had separate businesses and there was a clear business partition and family settlement. In case the IRP does not allow Jio to bid, it can move NCLT to become one of the bidders.” Besides an already going on arbitration case between Ericsson and RCom, Ericsson had claimed in its September petition filings that in case the sale of RCom assets goes through, the lenders would get their money while operational creditors like them would be left at large. It also claimed that the 9,000 employees working at RCom were Ericsson’s and despite many rounds of negotiations, Reliance hadn’t come around the due payments which were to be made to Ericsson.
After this ordeal in the month of September, RCom representatives along with 28 banks led by SBI had countered Ericsson’s statement by saying that putting a hold on sale would hurt public interest as well financial creditors.
This is not the only issue that RCom seems to be facing, on the other side, Reliance Communications owned subsidiary Reliance Infratel is standing against HSBC Daisy Investments along with other shareholders who are in opposition of the sale of assets as per NCLAT’s order in Delhi.
RCom has been cornered by legalities from all side. That specifically has been the reason why the telco could not go through the Aircel merger deal because. Post the cancellation of the Aircel merger, the valuation of the company further dipped causing a dent in financials. Finally, in December of 2017, the telco shut down its services and entered a debt restructuring process to ease the financials of the company. Later the company, however, admitted that they had opted out of the process and instead signed an alternative asset sale deal with Reliance Jio.