The Supreme Court on Friday allowed Anil Ambani-owned Reliance Communications (RCom) to sell its telecom assets worth about Rs 181 billion to Reliance Jio, controlled by his elder brother Mukesh Ambani. The transaction will help RCom reduce its debt by half while giving crucial infrastructure, including spectrum, to RJio.
The entire proceeds of the sale will go to RCom’s lenders, which have not been paid since June last year when the company’s financials deteriorated due to an intense pricing battle initiated by Jio.
The settlement terms arrived at between the lenders and RCom were, however, objected to by Swedish firm Ericsson, which had supplied equipment to RCom but was not paid. It moved the National Company Law Tribunal (NCLT), Mumbai, in May this year, seeking payment of its dues. The NCLT initiated insolvency proceedings against RCom and ordered the operator to pay Rs 5.5 billion to Ericsson by the end of September. Subsequently, RCom moved the National Company Law Appellate Tribunal (NCLAT), which stayed the bankruptcy proceedings but asked RCom to pay the dues to Ericsson. If the dues are not paid by September-end, the NCLAT had warned, the entire sale of assets would be reversed. RCom then moved a special leave petition to the Supreme Court.
A two-judge bench of the apex court said on Friday that RCom would have to pay Rs 5.5 billion to Ericsson by October 1 and RCom’s Chairman Anil Ambani would have to give an undertaking that RCom would pay the money before the deadline.
Reacting to the news, RCom shares closed 5.73 per cent up at Rs 15.69 apiece.
With the SC order, RCom will complete the sale of its assets by the August 27 deadline imposed by the Reserve Bank of India. A legal source said the sale of assets would bring down debt on RCom’s books by around Rs 250 billion, including Rs 70 billion in deferred spectrum payment liabilities. The spectrum liabilities will now get transferred to Jio, as it will be the new owner of the spectrum.
The move will also enable RCom to reinstate the bank guarantees that were encashed by the department of telecommunications (DoT) earlier this year on account of deferred spectrum payment liabilities. In the second phase of its debt reduction plan, RCom plans to raise another Rs 37 billion by selling its remaining 850 MHz spectrum assets to Jio.
With these two asset sales, and monetisation of the company’s 133-acre Dhirubhai Ambani Knowledge City campus in Navi Mumbai and its 4-acre prime property in New Delhi, RCom expects to raise another Rs 100 billion. With this, RCom’s debt will be reduced by nearly Rs 390 billion from close to Rs 447 billion, said a source close to the development.
Soon after announcing the sale of assets in December last year, RCom had exited its wireless B2C business on January 31 this year. In December 2017, Jio agreed to acquire 122.4 MHz of 4G Spectrum in the 800/900/1800/2100 MHz bands, over 43,000 towers, around 1,78,000 route KM of fiber with pan- Indian footprint and 248 media convergence nodes, covering 5 million square feet used for hosting telecom infrastructure of RCom. These assets are expected to contribute significantly to the large scale roll-out of wireless and fiber to home and enterprise services by Jio.
The deal received green signal from the banks which are suffering due to a sharp rise in bad debt.
RCom had defaulted on its loans and had entered the Strategic Debt Restructuring scheme in June last year to recast its debt. According to the deal with the lenders, RCom was to sell its assets by December last year and repay loans.