Reliance Communications Bankruptcy
Reliance Communications Ltd, controlled by businessman Anil Ambani, owed banks $7 billion as of March 2017 when it last made public its debt level, and more to vendors.
Reliance Communications Ltd, controlled by businessman Anil Ambani, owed banks $7 billion as of March 2017 when it last made public its debt level, and more to vendors.
Reliance Communications Ltd lenders had not received any proceeds from its asset monetization plans, and that its overall debt resolution process had not made any progress. Over twelve months, talks with forty lenders to reach a consensus has been impossible and has driven them to the bankruptcy court.
The company has struggled under heavy debt and reported a string of losses during a price war, triggered by the market entry of Reliance Industries’ telecoms venture Reliance Jio.
The cut-price competition had prompted Reliance Communications Ltd to reduce operations by shutting down its wireless business.
Reliance Communications on 1st Feb, 2019 filed for insolvency for a fast-track resolution through NCLT, Mumbai. “Reliance Communications Ltd board expects substantial unsustainable debt and liabilities to stand extinguished under the NCLT process”
Ericsson, one of the vendors, had filed a contempt case against Anil Ambani, the Chairman of Reliance Communications. “The contempt cases against the chairman will continue and as per SC’s orders Ambani will have to appear on February 11,”
Why did Ericsson take Reliance Communications Ltd to the insolvency court?
Ericsson, one of Reliance Communications Ltd vendors, is owed Rs 1,150 crore in dues for the telecom network equipment they had supplied. The Swedish telecom giant took RCom to insolvency court when they couldn’t recover the money.
Now that Reliance Communications Ltd is in Insolvency, according to the IBC, there is a waterfall mechanism which is followed for financial dispute resolution. Under this, a secured financial creditor gets paid first. If any money is left, it then goes to the unsecured financial creditors, and the remaining to operational creditors.
Ericsson is an operational creditor. But in this case, since Ericsson moved the Supreme Court first, their claim was admitted.
Reliance Communications Ltd has been unable to complete its Rs 18,000 crore asset-sale plan due to various legal hurdles, with the spectrum sale to Jio having been rejected by the Department of Telecommunications (DoT) and the lack of consensus among more than 40 lenders, Indian and foreign, despite more than 45 meetings.
Besides Ericsson, Reliance Communications Ltd also needs to pay Rs 232 crore to the minority shareholders of Reliance Infratel, including HSBC Daisy Investments. This matter is being separately pursued in the NCLAT.
The latest development comes over a year after China Development Bank (CDB), the biggest foreign lender to Reliance Communications Ltd, withdrew a petition seeking to drag the indebted telecoms carrier into insolvency.
The Reliance board believes this course of action will be in the best interests of all stakeholders, ensuring comprehensive debt resolution in a final, transparent and time bound manner within the prescribed 270 days.
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