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NCLT admits Ericsson petition against RCom, orders bankruptcy proceedings

Update (May 18, 2018): Anil Ambani-led Reliance Communication has confirmed that it is in advanced talks with Ericsson to settle the unpaid dues matter, which has now resulted in an insolvency order by the National Company Law Tribunal. “We confirm that RCom and Ericsson are at an advanced stage of discussions to expeditiously resolve commercial issues. This will enable Reliance Communications to exit the National Company Law Tribunal (NCLT) process,” an RCom spokesperson said in a statement.

At the same time, other media reports suggest that the out-of-court settlement is unlikely. If the deal is worked out, it could possibly save RCom from bankruptcy proceedings, and allow its infrastructure asset sale deal with Jio to be completed, cutting the former’s losses.

Original story (May 16, 2018): A bench of the National Company Law Tribunal has admitted a petition by Ericsson and ordered bankruptcy proceedings against Anil Ambani-led Reliance Communication, a development which could make a big impact on RCom’s plans.

The tribunal’s order could delay the firm’s plan sell its infrastructural assets to Mukesh Ambani’s Jio. The deal, which was finalised in January, was an attempt by the debt-ridden RCom to reduce its losses.

Case history

Ericsson had moved court in September 2017 to recover unpaid dues of nearly Rs 11.55 billion. Ericsson’s Indian subsidiary had signed a deal in 2014 to operate and manage RCom‘s nationwide network for seven years. On this case, the arbitration court barred RCom from selling its assets. In response, the telco approached the Bombay High Court challenging the order in March.

On April 5, the Supreme Court lifted the stay on the sale of assets by RCom, directing that secured lenders can proceed with the asset sales in accordance with law.

After the recent development, it is reported that RCom is likely to move the National Company Law Appellate Tribunal against the NCLT order and that the case could reach the Supreme Court.

Sale of assets

Reliance Jio had said in January that it would buy wireless infrastructure assets from RCom in an all-cash deal, which experts pegged at Rs 24,000 crores. This deal, which was set to be completed by March-end, was a big part of RCom’s effort to cut its debt. RCom said that after the purchase Jio will gain over 178,000 kilometres of optic fibre, more than 43,000 cellphone towers and 122.4 MHz of 4G Spectrum in the 800/900/1800/2100 MHz bands. The deal even got its approval from the Competition Commission of India (CCI) earlier in March.

RCom recorded major losses in previous quarters, but its planned exit from consumer business, which comprised of wireless, direct to home and PCO, helped cut its losses up to 95% in the quarter ended December 30, 2017.

In November 2017, RCom had also agreed to sell its Reliance BIG TV business to Pantel Technologies Pvt. Ltd and Veecon Media and Television Ltd, where Veecom was to take over all of Reliance BIG TV’s contingent liabilities.

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