Little relief in sight for RCom lenders 17 months after insolvency action

Insolvency against bankrupt telecom company and two arms restarted last May after NCLAT lifted stay on proceedings; Rs 91,000 crore worth claims have been admitted against the firm.

It was billed as the largest ever debt reduction effort by any company in India as Reliance Communications (RCom) chairman Anil Ambani promised in June 2017 to reduce the company's Rs 45,000 crore debt by 60 per cent within seven months.

But three years following Ambani's announcement and seventeen months after the recommencement of insolvency proceedings against RCom the situation remains the same. Banks have not received a penny and the wait could get longer as tribunals have to decide first on whether spectrum of an insolvent company can be sold under the IBC process or not. 

Insolvency against RCom and its two subsidiaries recommenced last May after the National Company Law Appellate Tribunal (NCLAT) lifted its stay on the proceedings. Over Rs 95,000 crore worth claims were received and Rs 91,000 crore worth claims have been admitted against RCom. This includes Rs 49,000 crore claimed by lenders and Rs 31,000 crore claimed by department of telecommunications (DOT).

On March 2, the committee of creditors approved the resolution plans submitted by Reliance Jio and UV Asset Reconstruction Company Limited (UVARCL) for RCom and its two subsidiaries.

While Jio was the preferred bidder for Reliance Infratel (which has towers and optic fibre), UVARCL's bid was chosen for RCom and Reliance Telecom which has spectrum . The resolution plans proposes recovery of around Rs 23,000 crore of bank debt which is nearly 70 per cent of the amount owed to secured creditors.

On March 6, the  resolution plans were submitted to the National Company Law Tribunal (NCLT) for its nod. While hearing has concluded in Infratel's resolution plan and matter is reserved for order, hearing is still underway on RCom and Reliance Telecom's resolution plans.

A person familar with the matter said a question of law - whether spectrum can be subject to proceedings under the IBC would have to be taken up first before deciding on RCom's resolution plan.

This is a common question pertaining to both Aircel and RCom's resolution proposals and was raised by the Supreme Court  in its September 1 judgment on the adjusted gross revenue (AGR) dues of telecom firms.

Aircel's resolution plan was approved by  the Mumbai bench of NCLT in June but has been challenged by the DOT. before the appellate tribunal.  

The DOT has opposed RCom's resolution plan too. RCom has unpaid AGR dues of around Rs 25,000 crore and the telecom department has opposed to sale of its spectrum under insolvency as it would receive very little under the process.

"The right to use spectrum is an integral asset for a telecom company. Banks too have lent money to companies on the basis of spectrum. No one would come forward to submit a resolution plan for a company if its spectrum is not available for use, after take over. The whole resolution  process would get meaningless and  the objective of the IBC to keep  the company as a going concern would be defeated," said senior advocate K V Vishwanathan.

An another lawyer said income tax and goods and service tax departments are treated as operational creditors under the IBC and this gives them a lower priority in settlement of claims.

Telecom department and its dues should be treated likewise, he pointed out.

The NCLAT will be determining the issue related to spectrum under IBC in Aircel case after the Supreme Court gave two months to decide on the matter.  The Mumbai bench of NCLT would have to decide on matter too and any decision could again be subject of an appeal in apex court.

Some lawyers believe that this would not impact Reliance Infratel's resolution plan as it is a tower company and has no spectrum.

However there are other challenges too.  In August, the RBI rejected UVARCL's resolution plan to acquire Aircel under the IBC process as it did not confirm to norms governing asset reconstruction companies (ARCs). RBI's stance in the matter prompted intervention from ministry of corporate affairs and Insolvency and Bankruptcy Board of India. Both have asked the central bank to reconsider its view as this could jeopardise the ongoing  resolutions.

While there is no bar on ARCs under the IBC to bid for insolvent companies, tweaks will have to made to harmonize various regulations.

RCom's resolution professional Anish Nanavaty and ARC Association of India declined comment. 

What went wrong ? 

From 2010 onwards RCom borrowed heavily to buy spectrum but was unable to compete effectively with rival operators like Airtel, Idea Cellular and Vodafone. The commercial launch of Mukesh Ambani's Reliance Jio in 2016 unleashed a price war as it offered free calls and cheap data. 

Loan defaults and rating downgrades forced RCom to negotiate strategic debt restructuring exercise with lenders in June 2017.  While RCom  secured seven month breather to pay bank dues, Ambani announced the company would clear 60 per cent of the Rs 45,000 crore debt well before stipulated time. The plan involved sale of towers to Brookfield and merger of wireless business Aircel.

But the planned merger with Aircel collapsed in October 2017 due to lack of regulatory and legal challenges.  In December RCom inked an deal to sell its spectrum and towers to Jio but that deal also fell through in March 2019 due to lack of consent from lendors and regulators.

Meanwhile in September 2017 Ericsson dragged RCom to NCLT over unpaid dues of Rs 1500 crore. The plea was admitted in May 2018. RCom challenged the NCLT order but later agreed to a settlement with Ericsson. But its failure to pay Rs 550 crore within 120 days resulted in Ericsson knocking the doors of Supreme Court. Rcom finally paid the amount to the Swedish gear maker in March 2019 after the Supreme Court threatened to jail Anil Ambani for contempt.

The insolvency against RCom last May after the apellate tribunal vacated its stay on process.