Anil Ambani’s Reliance Communications Limited (RCom) announced on February 1 to file for a voluntary bankruptcy process with the Mumbai bench of National Company Law Tribunal. This announcement is turnaround to its decision for implementing the ‘Monetisation and Resolution Plan’ to settle over Rs. 46,000 crore debt to its creditors.
The decision comes at a time when RCom has failed to abide with a Supreme Court order given in October to repay its dues of Rs. 550 crore plus interest towards telecom equipment manufacturer Ericsson India Pvt. Ltd, one of its operational creditors. Recently, RCom faced another setback as the Department of Telecommunications (DoT) had once again rejected its spectrum sale to RJio, owned by his brother Mukesh Ambani, as RJio refused to be held liable for any RCom’s past dues.
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If the NCLT accepts RCom’s plea, the company will get bankruptcy protection - a 180-day moratorium (extendable to 90 more days) on repayment of loans. RCom’s creditors consortium includes State Bank of India, China Development Bank, Union Bank, Canara Bank, IDBI Bank, Standard Chartered Bank and HSBC among others.
“Resolution through NCLT is in the best interests of all stakeholders, ensuring finality, certainty and transparency through a time-bound court approved process,” stated RCom on Friday. The company claimed that factors such as differences among its lenders for a common asset resolution plan and numerous legal challenges has prompted it to choose bankruptcy.
It is to be noted that in May last year, the NCLT had admitted RCom and its two subsidiaries - Reliance Telecom Ltd (RTL) and Reliance Infratel Ltd (RIL) to a resolution process under the Insolvency and Bankruptcy Code, 2016 (IBC) after a petition by Ericsson. And the NCLT had also appointed Interim Resolution Professionals (IRPs) to initiate corporate Insolvency Resolution Process in the same month. When RCom challenged this order in the National Company Law Appellate Tribunal (NCLAT), the NCLT order was stayed and the company’s management was allowed to function and settle its dues.
In the past few months, RCom was trying to make a Rs. 18,100 crore deal with RJio for the sale of its assets including spectrum, fibre and infrastructure assets to repay its debts. With a part of the deal cleared (sale of towers and fibre), RCom got around Rs. 3,000 crore. But the company continued to delay payments to Ericsson (despite apex court’s order). Instead, it had reinstated bank guarantees of Rs. 774 crore with the DoT, perhaps, to ward-off the threat to license and spectrum cancellation.
However, RCom’s voluntary bankruptcy initiation benefits its promoters with higher chances to retain the company under IBC.
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