Mukesh Ambani may reap rewards from younger brother Anil's telecom woes

Asia’s richest man Mukesh Ambani’s decision to end a deal with his brother -- even as he bailed him out -- may be an astute business move.

While helping keep his sibling out of prison this week, Ambani also ditched an accord to buy the assets of his brother’s beleaguered telecom carrier Reliance Communications Ltd., effectively nudging it toward bankruptcy. With RCom all but sure to head into insolvency proceedings, Ambani may be able to snag those same assets at a discount.

In a last-minute rescue Monday, Mukesh stepped in to help younger brother Anil pay $80 million in dues to a local unit of Ericsson AB and avert a three-month jail sentence. On the same day, his Reliance Jio Infocomm Ltd. and Anil’s RCom terminated a 2017 deal that had helped the latter stave off bankruptcy.

With that deal now off, RCom is likely to go into a court-led process that may provide Mukesh’s Jio another shot at buying up the carrier’s airwaves, towers and fiber. What’s more, he may get them for less than the Rs 173 billion ($2.5 billion) Jio agreed to pay a year ago given the weak financial health of India’s other telecom operators.

Cheaper For Jio
 

“Jio may have scrapped the asset purchase deal with RCom, but it cannot be ruled out that Jio will try and participate in the purchase,” under the bankruptcy process, said Saurav Kumar, a New Delhi-based partner at IndusLaw, an Indian law firm. That “may eventually be cheaper for Jio.”

A lower price for RCom’s assets would mean deeper haircuts for lenders trying to recover some of the $7 billion in debt the unprofitable operator had as of March 2018.

“India’s bleeding telecom sector will probably keep auction prices low,” allowing Jio to spend less on acquiring RCom’s spectrum, Kunal Agrawal, a Bloomberg Intelligence analyst said in a March 19 note.

Jio’s debut in 2016 with free services slashed tariffs, forcing rivals into a brutal price war, where some merged while others quit or went bankrupt. Vodafone Idea Ltd., India’s no. 1 carrier, continues to report losses while Bharti Airtel Ltd., the second-biggest, has posted profits aided by one-time gains.

Shown Interest
 

Bharti Airtel’s tower unit Bharti Infratel Ltd. and Canadian private equity fund Brookfield Asset Management have shown interest in RCom’s tower assets, Business Standard reported citing sources it didn’t name.

Jio’s strength is buttressed by cash flows from parent Reliance Industries Ltd.’s petrochemicals and refining businesses.

Emails seeking comments from spokespersons at Reliance Industries and RCom went unanswered.

RCom on Monday reiterated that it was “committed to a comprehensive resolution” of its overall debt through India’s bankruptcy process.

A lack of approvals from over 40 Indian and foreign lenders over 15 months was cited as one of the reasons for killing the Jio deal, according to a RCom statement, besides other regulatory delays.

Invite Bids
 

Under bankruptcy proceedings, a court-appointed insolvency professional and panel of secured creditors will invite bids for RCom’s assets and oversee the sale process. About two-third of the creditors will need to agree to any resolution plan.

“It’s likely that bankers may approve a deal with some significant haircuts,” given the insolvency law doesn’t require consensus, IndusLaw’s Kumar said.

A year ago lenders had hoped for a very different outcome when Anil Ambani promised there would be no write-offs or equity conversions as his company neared asset sales. Earlier in 2017, he had promised RCom’s debt-reduction plan would be the largest in India’s history.

None of that went as planned. Banks were this month reprimanded by a judge for failing to crack down on RCom and better scrutinize the ambitious recovery picture it had painted.

“It takes two hands to clap,” said Justice S.J. Mukhopadhaya of the National Company Law Appellate Tribunal. “You have also failed. You can’t just say they (RCom) failed.”