Indian telecom operator Reliance Communications Ltd. will lose control of its undersea cable unit GCX Ltd. after a Delaware Court approved a creditor-supported Chapter 11 plan for the subsidiary, in a setback to its own closely-watched bankruptcy process.
The plan that got the nod this week will grant ownership of GCX to its own creditors in exchange for a debt write down of $150 million, according to a GCX statement and filings. The administrator of Reliance Communications had objected to the plan, arguing that the unit isn’t fundamentally insolvent and that it couldn’t function without its parent, a major client of the firm.
The loss of the unit, which is one of the world’s largest private subsea cable operators and provides fiber optic cable capacity to Reliance Communications’ network, may complicate the telecom operator’s efforts to restructure more than Rs 50,000 crore ($7 billion) in debt. The bankruptcy process of the company founded by Anil Ambani is being closely watched by investors as a test for India’s fledgling insolvency court.
The success of the bankruptcy court is key to reviving India’s lenders, which are hamstrung with a $130 billion pile of bad loans. That’s constrained their ability to lend, even as India battles slowing economic growth.
Reliance Communications’ resolution professional -- a court-appointed administrator in India’s insolvency courts -- argued that GCX was dependent on the Indian telecom operator, and wouldn’t have access to its landing stations and customers if it were to sever the link by handing over ownership to GCX’s creditors, Chapter 11 filings showed.
RCom’s spokesman didn’t have any immediate comment when contacted. There was no immediate reply to emailed questions to the company’s resolution professional, and phone calls went unanswered.
Reliance Communications’ administrator also contested GCX’s resort to the Chapter 11 process after out-of-court restructuring talks failed, and the expansion of the unit’s board and the appointments of a chief restructuring officer and an independent director before that, according to the filings.