Ambani seeks bankruptcy cover for Reliance Communications

Billionaire Anil Ambani’s Reliance Communications will file for bankruptcy. (Bloomberg pic)

MUMBAI: Billionaire Anil Ambani’s Reliance Communications will file for insolvency in India after legal hurdles stymied attempts to sell assets and repay about US$6.3 billion of debt.

Reliance Communications agreed to approach the National Company Law Tribunal after failing to pay lenders for the past 18 months, the company said in a statement. Ambani had agreed to sell Reliance Communications’ towers, spectrum and fibre assets to older brother Mukesh Ambani’s Reliance Jio Infocomm for 173 billion rupees (US$2.4 billion) in 2017 to fend off bankruptcy action by creditors.

The brothers have since wrapped up smaller deals but hurdles such as approval from the Department of Telecom stalled others.

The decline of the company that was once India’s fourth-largest mobile-phone service provider highlights the travails of the industry that borrowed heavily to expand in a market where tariffs are as low as 1 cent.

The entry of Anil’s older sibling with free calls and cheap data in 2016, reignited a price war that prompted Vodafone Group PLC’s India unit and Idea Cellular to combine and forced billionaire T Ananda Krishnan’s Aircel into bankruptcy court.

“The adoption of the bankruptcy proceeding for Reliance Communications at one level speaks of deep challenges owing to the high leverage the company has faced,” said Mumbai-based Alok Shende, principal analyst at consulting firm Ascentius Insights. While insolvency proceedings “will give breathing space to Reliance Communications, the overall drivers for the industry remain challenging,” he said.

The move to go to bankruptcy court comes after India’s top court in January relaxed rules forbidding founders or entities related to them from purchasing assets admitted under the insolvency process. That may give Ambani’s older brother and Asia’s richest man a second pass at Reliance Communications assets.

Reliance Communications blamed its decision to approach the court on a lack of consensus among its more than 40 lenders, despite 45 meetings over 12 months, as well as numerous issues pending before various courts and other agencies.

“Despite the passage of over 18 months, lenders have received zero proceeds from the proposed asset monetization plans,” the company said in an exchange filing Friday. “The overall debt resolution process is yet to make any headway.”

In a separate statement on Sunday, the company said its proposal under the bankruptcy process will be the same as previous plans it pursued with creditors. This includes the sale of all telecom infrastructure assets and spectrum, as well as real estate assets.

“Challenges raised by unreasonable minority lenders can be now be overcome through the National Company Law Tribunal’s 66% majority rule, against the 100% approvals rule outside NCLT,” it said. It added it expects a fast-track resolution in 2019 and stays confident of prospects as a going concern.

Reliance Communications sued the Indian government for not clearing its deal to sell telecom spectrum to his brother. The local unit of Ericlawsuitsiled law suits against Reliance Communications after the Mumbai-based company repeatedly failed to honour dues.

“Untenable issues raised by Department of Telecommunications that frustrated the existing plan can now be addressed under the NCLT process,” Reliance Communications said. The company sees “substantial” unsustainable debt extinguished under the bankruptcy process.

Ambani had said in December 2017 that there would be no write-offs or equity conversion for lenders and bond holders as his company neared assets sales that would help it cut total borrowings by US$5.5 billion.

Ambani said in June of that year that Reliance Communications’s debt reduction plan would be the largest in India’s history and would create long-term value for shareholders.