DoT rejects RCom spectrum deal after Jio refuses to take loan liability

Mukesh Ambani's Reliance Jio Infocomm had agreed to buy spectrum, towers and other wireless infrastructure of his younger brother

In a major blow to Anil Ambani's Reliance Communications (RCom), the department of telecommunications (DoT) on Tuesday refused to give a clearance to the proposed RCom-Reliance Jio Infocomm spectrum trade deal. As part of its debt reduction efforts, Anil Ambani-led RCom had in December 2017 signed a Rs 250-billion deal with elder brother Mukesh Ambani's Reliance Jio. The deal included the sale of assets mortgaged with different banks to avoid insolvency proceedings. The company expected to raise Rs 180 billion from the sale of its wireless assets to RJio and real estate assets to Canada's Brookfield, and pare some of its Rs 460-billion debt.

Earlier, the apex court had asked RCom to furnish a corporate guarantee of Rs 14 billion within 2 days, following which DoT had to give it a No Objection Certificate (NOC) for the RCom-RJio spectrum sale deal within 7 days. All seemed to be going as planned; RCom furnished the guarantee amount and the DoT agreed to give it the green signal.

Big brother's letter caused the trouble?

On Friday, DoT had told the Supreme Court that it was ready to provide the company an NOC for spectrum and asset sale to Jio. However, by Tuesday, the DoT reversed its stand following Jio's letter, where it sought assurances from the government that it won’t be held liable for RCom’s past dues related to airwaves, reported the Economic Times.

In a letter to the DoT, RJio stated that although RCom offered a corporate guarantee of Rs 14 billion towards settling its dues, the licence conditions stipulated that it should also give a bank guarantee.

Jio's conditions, mentioned in the letter to the government, were not in accordance with the spectrum trading norms, according to which the buyer is liable for dues that haven’t been recovered from the seller.

“The trading rules clearly say DoT can ask both the operators or any one of them to pay the dues. Since Jio has imposed conditions, we cannot accept it (the deal) as it goes against the guidelines,” said a senior DoT official. “Now the ball is in their court. They have to decide and come back to us. Till then, this deal is off the table," the official told ET.

Mukesh Ambani's deal with Anil Ambani

Mukesh Ambani’s Reliance Jio agreed to buy spectrum, towers and other wireless infrastructure of his younger brother. 

Reliance Jio was to acquire assets under four categories — towers, optic fibre cable network, spectrum and media convergence nodes — from RCom.

That followed an asset monetisation process for RCom assets mandated by its lenders and managed by SBI Capital Markets Ltd. Reliance Jio emerged as the successful bidder in the two-stage bidding process. The proceeds were to be used entirely for the struggling telecom operator's debt reduction.

The deal was considered a “win-win” for both Ambani brothers. 

Reliance Communications debt

RCom has to pay Rs 5.5 billion to Ericsson as a part of an agreement it had reached with the latter in the National Company Law Appellate Tribunal (NCLAT). Apart from Ericsson, the Anil Ambani-led company has to clear a debt of nearly 39 financial lenders and operational creditors.