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Anil Ambani seeks bankruptcy cover for RCom after asset sales stall

Anil-Ambani-seeks-bankruptcy-GBO

The famed Indian billionaire’s Reliance Communications Ltd. will file for insolvency in India after legal hurdles stymied attempts to sell assets and repay about $6.3 billion of debt

RCom agreed to approach the National Company Law Tribunal after failing to pay lenders for the past 18 months, said the company in a statement. Ambani had agreed to sell Rcom’s towers, spectrum and fiber assets to his older brother Mukesh Ambani’s Reliance Jio Infocomm Ltd. for $2.4bn in 2017 to fend off bankruptcy action by creditors. The brothers have since wrapped up smaller deals but hurdles such as approval from the Department of Telecom have stalled others.

The company, which was once India’s fourth-largest mobile-phone service provider has highlighted the travails of the industry that borrowed heavily to expand in a market where tariffs are as low as 1 cent. The entry of Anil’s older sibling with free calls and cheap data in 2016, reignited a price war that prompted Voafone Group Plc.’s India unit and Idea Cellular Ltd. to combine and force billionaire T Ananda Krishnan’s Aircel Ltd. into bankruptcy court.

“The adoption of bankruptcy proceeding for RCom at one level speaks of deep challenges owing to the high leverage the company has faced,” stated Mumbai-based Alok Shende, principal analyst at consulting firm Ascentius Insights. He stated that while insolvency proceedings “will give breathing space to RCom, the overall drivers for the industry remain challenging.”

The move to go to bankruptcy court came after India’s top court in January relaxed rules forbidding founders or entities related to them from purchasing assets admitted under the insolvency process. That may give Ambani’s older brother and Asia’s richest man a second pass at RCom assets.

RCom blamed its decision to approach the court on a lack of consensus among its more than 40 lenders, despite 45 meetings over 12 months, as well as numerous issues pending before various courts and other agencies.

“Despite the passage of over 18 months, lenders have received zero proceeds from the proposed asset monetization plans,” the company stated in an exchange filing Friday.

 “The overall debt resolution process is yet to make any headway.” He added.

In a separate statement on Sunday, the company said that its proposal under the bankruptcy process will be the same as previous plans it pursued with creditors. This includes sale of all telecom infrastructure assets and spectrum, as well as real estate assets.

 “Challenges raised by unreasonable minority lenders can be now be overcome through the National Company Law Tribunal’s 66% majority rule, against the 100% approvals rule outside NCLT,” it said. It added it expects a fast-track resolution in 2019 and stays confident of prospects as a going concern.

Read a Q&A about why India’s phone industry has been in turmoil RCom sued the Indian government for not clearing its deal to sell telecom spectrum to his brother. The local unit of Ericsson AB filed law suits against RCom after the Mumbai-based company repeatedly failed to honor dues.

“Untenable issues raised by Department of Telecommunications that frustrated the existing plan can now be addressed under the NCLT process,” RCom stated. The company sees “substantial” unsustainable debt extinguished under the bankruptcy process.

In December 2017, Ambani had said that there would be no write-odds or equity conversion for lenders and bond holders as his company neared assets sales that would help it cut total borrowings by $5.5bn. Ambani stated in June of that year that RCom’s debt reduction plan would be the largest in India’s history and would create long-term value for shareholders.

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