After RCom and Ericsson moved towards a legal spat over Ericsson’s petition in the NCLT for settling the dues which Reliance Communications owed to the Swedish manufacturer, things were looking ugly for both the parties. However, in a recent twist of events people aware of the matter informed that RCom and Ericsson might be looking to settle the matter outside the NCLT. The share price of the company soared as high as 70% after the update surfaced. One of the people related to the matter said: “Right now, talks are on, but no formal proposal has been made.” Another person added, “The amount to be paid is being discussed for settlement.” Initially, Ericsson rejected the initial settlement offering of Rs 400-500 crore, and now the terms have come to discuss the price of Rs 700 to Rs 800 crore for the settlement. To ensure that the deal goes through, Ericsson is looking towards obtaining an undertaking from SBI, being one of RCom’s lenders that the bank will pay up the dues if Reliance Communications fails to deliver. A person aware of the matter said: “SBI is likely to come up with a bank guarantee of the settlement amount”.
To get things in perspective, Ericsson is going through all this ordeal to recover its Rs 1,000 crore which it was to be paid for its 7 seven years services for operating and managing RCom’s telecom network in India. Ericsson had signed the deal in 2014.
Initially, both the parties were at the inoffensive front as Ericsson’s three petitions were accepted in the National Company Law Tribunal. Post that, the NCLT order bankruptcy proceedings on Reliance Communications to recover the dues.
If the new settlement terms are solidified during the talks with Ericsson, RCom will still be allowed to sell its wireless assets like spectrum, towers, fibre network and switching nodes to Reliance Jio Infocomm for Rs 18,000 crore. Further, this would be used to pave in RCom’s debt of Rs 46,000 crore.
Like we mentioned, the news of the settlement caused a spike in the prices of RCom’s stocks where on the BSE the price of the stock went as high as Rs 17.90 which was 70% more and was then pegged at Rs 16.55 at closing time, with a 57% gain. This is very contrary to the picture that people saw on Wednesday when RCom stock sunk down 20% after NCLT admitted Ericsson’s petitions.
As per the report by ET, Ericsson is not the only company who is standing against RCom at this point of time. HSBC Daisy Investments who are also opposed to the selling of Reliance Communication’s assets to save their interest are probably going to build their case up using the news of the settlement between Ericsson and RCom. While Ericsson said that it wouldn’t take decisions depending on market speculation, SBI being RCom’s lender refused to make any statements in this regard.
What actually caused the NCLT to order insolvency proceedings against RCom was the rejection of RCom’s plea to put off delivering the full order, which happened on Thursday. One day after the tribunal accepted Ericsson’s petitions.
The Swedish manufacturer immediately suggested two to three names for the interim Resolution Professional approval from the NCLT. Apparently, the insolvency proceedings were to start on May 15 after which the IRP would have a 270 days window to find ways to clear RCom’s dues. If not, then Reliance Communications would have to go through liquidation. This new revelation made RCom join the likes of Aircel, because of standing on the verge of bankruptcy.
There were some solid reasons on Ericsson’s part which made the NCLT accept their petitions in April 2017. At that point of time, Anil Ambani led telco owed Ericsson Rs 978.71 crore, this debt has now risen to Rs 1,012 crore. The NCLT took the petition into its consideration because the telco kept on defaulting the payments which were to be made to the company. In the NCLT the two-member panel headed by BSV Prakash Kumar said the following – “The petitioner (Ericsson) proved the existence of debt and default… we are of the considered view that these petitions are fit for admission.” They further added “It appears that Reliance (RCom) failed to adhere to the terms and conditions entered in between Ericsson and Reliance by failing to make payment amounting to approx. Rs 1,000 crore.”
It was after this order that NCLT approved the news be made official by announcing it publicly. Also, it put a hold on RCom’s selling off assets. The NCLT also clarified that all other legal proceedings against RCom would not move further including Ericsson’s case against RCom in a separate arbitral tribunal.
This new order by NCLT put a full stop to RCom’s plans of repaying a group of lenders by obtaining the means to pay them from the Reliance Jio Infocomm deal. RCom shut its operation totally at the end of December 2017 after its merger deal with Aircel couldn’t materialise. The intense market competition in the country forced RCom’s hands down this path.
Chakri is a go-to guy for your next smartphone recommendation. Back in his engineering days, he used to play with smartphones by installing custom ROMs and that passion got him into the tech industry. He still goes nuts about a smartphone knocking his door for review. Currently managing everything at Telecom Talk, Chakri is trying to master PUBG Mobile in his free time.