UV Asset Reconstruction permitted to sell Aircel's spectrum rights

Asset management company UV Asset Reconstruction Company (UVARCL) has been permitted to sell the right to use the spectrum held by Aircel in the 1800 and 2100 bands as part of the telecom company’s resolution plan the National Company Law Tribunal (NCLT) has cleared.

The order is on the resolution plan for Aircel and its subsidiaries Dishnet Wireless and Aircel Cellular. The outstanding debt of the three companies is around Rs 58,760 crore. Financial creditors will have to take a considerable haircut in this.

According to the NCLT order, UVARCL has proposed to pay Rs 19,600 crore, of which around Rs 6,630 crore is by way of ZOCDs (zero-coupon optionally convertible debentures) and the balance of Rs 12,970 crore is paid upfront. 

It was stated that UVARCL will buy equity by paying Rs 11 crore and the balance through ways such as asset monetisation, for which selling the right to use spectrum is the most feasible option; selling equipment, real estate, towers, and fibre assets; proceeds from realising claims; proceeds from the benefit of carry-forward losses; and unabsorbed depreciation.

The NCLT has endorsed the resolution professional’s proposal granting the sale.  

As part of the order, UVARCL will also be able to sell optical fibre of 14,500 km and some equipment, most of which has gone obsolete. It has also been allowed to lease the tower infrastructure, in which 30 per cent is based on 3G technology.

The order says the company has endorsed certain businesses, which it says are viable. These include bulk SMS, data centres, and leasing towers.  UVARCL was the only applicant that gave a bid for the telecom company, which once had over 75 million customers. However, the NCLT raised some questions on the resolution proposal. It said a bare reading of this proposal is very optimistic at best and comes with a lot of uncertainties. Therefore, the plan does not appear to a resolution plan but appears to be a winding up, liquidation plan while just retaining a small portion of the business operations of the corporate applicants”.

The tribunal pointed out apparent contradictions in the plan. While the plan said licences were protected against cancellation and it was about monetising the assets of Aircel, in another place it said it would rectify and maintain the optical fibre network assets. It also said the applicant would retain a fraction of the business, which is expected to generate around Rs 292 crore in three years, and the plan was not in accordance with the provisions of the Income Tax Act and the existing benefits envisaged might not be available.

UVRCL may generate a negligible amount from business for three years and this logic appears to be flawed, it added. 

Responding to the observations Ritesh Aggarwal, chief financial officer of UVARCL, said: “This is the best resolution one could have added in these circumstances …” 

When told that the resolution looked more like liquidating the company because there was no clarity as to whether the towers would be leased or sold, Aggarwal said: “If the assets were liquidated, spectrum would have gone back to the DoT and there would have been no value. Two, the optical fibre, which requires repair, will fetch much more now than in liquidation.” 

He said the company would use some of the equipment of Aircel to carry on its business of bulk SMS and data centres. Under the deal, the financial creditors will get 26 per cent upfront equity on the non-serviceable debt, and thus receive profit from the scaled-down operations of Aircel.

The key financial creditors for Aircel include State Bank of India, China Development Bank Corporation, Bank of Baroda, Canara Bank, Punjab National Bank, L&T Infrastructure Finance, and Nordic Investment Bank.