Analysts say the value of wireless assets of RCom may take a beating once it reaches NCLT as only Jio could be a potential buyer as it needs to bolster its spectrum and tower holdings
Once India's second largest telecom player, Reliance Communications (RCom) has crumbled under the weight of its mounting debt.
After Aircel, the Anil Ambani-promoted firm has become the second telecom player to knock the doors of National Company Law Tribunal (NCLT) as all efforts to restructure it and sell assets have failed to bear any fruits.
On Friday, the Board of RCom decided to move NCLT under the Insolvency and Bankruptcy Code, 2016, as no decision could be reached even after 18 months of its debt restructuring plan to pay off lenders. The development may also hit the valuation of RCom's wireless assets as Reliance Jio seems to be the only buyer in the telecom industry, according to analysts. RCom has the most valuable spectrum in 800MHz band, which is best-suited for Jio to bolster its 4G play.
The ripples of the decision could be seen on Monday as the shares of the company plunged 34.91% and closed at Rs 7.55 on the BSE.
Reliance Communications, the telecom business of Reliance Group, fell into the kitty of Anil Ambani after the split of the empire in 2005. The telecom business was the brain child of Anil Ambani's elder brother Mukesh Ambani, who disrupted the sector with Jio's launch in 2016.
Way back, RCom started its telecom business with the erstwhile CDMA technology and then shifted to the GSM technology much later after the government changed the rules.
"Their decline started much before the entry of Reliance Jio. They started their telecom business with a wrong platform – CDMA, which required somebody with deep pockets to create that ecosystem just like Jio is doing with its 4G services. The company stopped investing in networks at a time when they could have liberalised their spectrum and could have taken a first mover advantage on 4G," a Mumbai-based analyst said requesting anonymity.
Another analyst echoed similar views and said it is not fair to blame Jio completely, just that Jio brought it to a point from where it could not return.
Analysts also said the value of wireless assets of RCom may take a beating once it reaches NCLT as only Jio could be a potential buyer as it needs to bolster its spectrum and tower holdings. No other telecom player has the money or any requirement to bid for the assets of RCom.
"The very fact that Jio has refused to pay for RCom's past liabilities and allowed it to go to NCLT shows that Jio is fairly confident of buying its assets at a cheaper price," the analyst said.
RCom and RJio had entered into an agreement to sell former's wireless assets at around Rs 18,000 crore. But the spectrum trading deal got stuck with Department of Telecommunications as Jio refused to take liability for past spectrum dues of RCom.
On Monday, National Company Law Appellate Tribunal said until further orders, no one can sell, transfer or alienate any movable or immovable property of RCom nor invoke any guarantee or mortgage or any other instrument without prior permission of this appellate tribunal or Supreme Court. It also allowed Ericsson India to file its objection by February 8 over Reliance Communications's plea to proceed with the insolvency process. The matter has been listed for February 12.
Swedish equipment player Ericsson had moved the Supreme Court to recover its dues of around Rs 550 crore from RCom which it has not been able to pay. In 2018, RCom had averted three insolvency petitions filed by Ericsson. But when it failed to meet the last deadline due to a delay in the approval from the DoT, Ericsson filed contempt plea in SC against Anil Ambani and asked the court to stop him from leaving the country.
In the statement on Friday, RCom said lack of complete approvals and consensus despite over 45 meetings, pendency of numerous legal issues at high courts, Telecom Disputes Settlement and Appellate Tribunal (TDSAT) and Supreme Court as reasons to approach NCLT. It had formulated a strategic debt restructuring (SDR) plan initiated in June 2017 but no headway was made since then.
RCom owes about Rs 46,000 crore to a group of 38 lenders, including Chinese banks.
NECK-DEEP IN DEBT
- Rs 46,000 cr – RCom owes to a group of 38 lenders
- Rs 18,000 cr – Sale of RCom's wireless assets to Jio would have fetched
- Analysts say the value of wireless assets of RCom may take a beating once it reaches NCLT as only Jio could be a potential buyer as it needs to bolster its spectrum and tower holdings
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Reliance Communications, the telecom business of Reliance Group, fell into the kitty of Anil Ambani after the split of the empire in 2005. The telecom business was the brain child of Anil Ambani's elder brother Mukesh Ambani, who disrupted the sector with Jio's launch in 2016.
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