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Mapping insolvency: NCLT admits RCom, two subsidiaries under IBC

Advait Rao Palepu & Dhanishta Mittal/Mumbai 16 May 18 | 07:00 AM

Three telecommunications companies from the Anil Ambani-owned Reliance group have been admitted by the Mumbai bench of the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code (IBC), after Ericsson India moved the tribunal.

Ericsson filed an insolvency petition against Reliance Communications (RCom) and its two subsidiaries, Reliance Infratel and Reliance Telecom, for payment towards services rendered for maintaining, upgrading and developing the telecom infrastructure owned or operated by the three companies.

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Ericsson will propose a name of an appropriate insolvency resolution professional (IRP) before the NCLT bench of Justice BSV Prakash Kumar and Justice Duraiswamy on May 16. The IRP will have a total of 270 days to work on a debt repayment plan or a liquidation plan that will have to be approved by bankers and the tribunal. Last week legal representatives of Ericsson told the tribunal the three companies owed Ericsson Rs 11.5 billion. Now that the three companies have been admitted under the IBC, other operational creditors could also approach the IRP to recover dues.

In response, RCom’s counsel argued that the case on the same grounds for recovery of dues was admitted in the arbitrational tribunal, so it was not necessary to admit the company under the IBC.

RCom owes financial institutions around Rs 450 billion and as of last December the company had received consent to restructure its debt. The debt restructuring plan involved selling assets, such as spectrum, mobile towers and optical fibre network, to Mukesh Ambani’s Reliance Jio Infocomm for Rs 180 billion. Jio also has tower, fibre and airwave sharing agreements with RCom since 2016, and the deal was meant to be completed by August 26.

An RCom spokesperson said the company and its two subsidiaries “await the detailed orders of the NCLT, Mumbai, allowing the Ericsson application for admitting the companies to debt resolution under IBC. The firms will decide the next course of action after studying the orders".

RCom had entered into a standstill agreement with its lenders under which it would nor repay interest or principal till December 2018. These lenders could now file their applications for claims with the appointed IRP.

The legal representatives for RCom, Jio and State Bank of India have argued that due to the lawsuits, including one filed with the NCLT by minority shareholders who oppose the debt restructuring plan, the sale of the company’s assets to Jio was delayed, further reducing the value of these assets.

Further, given that new rules of the IBC debar takeovers of stressed companies by related firms, Jio could now be ineligible to bid for RCom. Mukesh Ambani's Jio will have to seek legal recourse and convince the IRP and the committee of creditors, if and when constituted, of his company's eligibility, failing which Jio’s domestic competitors like Airtel or Vodafone or a foreign telco can steal the deal. 

Reliance Naval and Engineering and Reliance Marine and Offshore, two other Anil Ambani companies, are also facing proceedings at the NCLT in Ahmedabad.

RCom’s stock on Tuesday closed at Rs 12.45 on the BSE, 7.8 per cent lower than its previous closing price.

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