Story Of The Week

Crisis engulfs: Reliance Communications faces payment Crisis

Mr Anil Ambani has struggled for years for repaying of the debt, fending off creditors and defending hard, his debt-laden business. But, now he is at a delicate position where the only way out is to repay the dues or sentence. Yes, we are talking here about the deal where, three telecom entities of Reliance – Reliance Communications, Reliance Infratel Limited, and Reliance Telecom signed and outsourced their nationwide operations to the Swedish Telecom maker Ericsson AB for seven years. Anil Ambani is liable to pay a heavy amount to Ericsson in reference to the same deal. The issue thus went to the Supreme Court and which had ordered Mr Ambani to clear the dues by a specified deadline. Reliance couldn’t pay to Ericsson in stipulated time and now it has become a Do or Die situation for the businessman. What is the amount? What were the deadlines? Why Mr Ambani couldn’t clear the dues? Let’s delve deeper and figure out the nitty gritty of the case.

 

Dues and Deadlines

The amount involved is Rs. 550 crores ($77 million). The SC asked the Reliance entities to clear the dues initially in 120 days and, given an additional 60 days for the same with the final deadline being February 20, 2019. The amount was owed to a local Subsidiary of Ericsson AB.

 

The Dispute Explained

Initially, Ericsson alleged that Reliance owes around Rs. 1150 crore and challenged the company in NCLAT in May last year. Ambani agreed to settle the dispute by offering Rs. 550 Crores to the Ericsson. The deadline for the same was September 30, 2018. However, the payment was not cleared in September 2018 and the Swedish Telecom maker went to the Supreme Court with the stance that if Reliance can invest in Rafale jet deal, it will surely have money to repay the dues. The SC gave the final deadline as February 20, 2019, which was missed again. The reason specified by Mr Anil Ambani for the inability to the payment of dues is the failure of the deal where Mr Mukesh Ambani, the elder brother, agreed to acquire the assets of Reliance Communications and the losing the control over funds because the company entered into an insolvency process.

 

Why Default?

The reason for default on the payment of the dues as specified by the Reliance Telecom was the failure of RCOM-Jio deal from where he could source its payments to clear its dues. Reliance Communications filed a plea in the apex court against DoT where it alleged DoT for refusing to grant “no objection certificate” which led scraping off of the Rs. 25,000 crore deal which involved spectrum sale, the sale of communication towers and other infrastructure assets to Jio. But, according to the court, the deal fell because the prospective buyer, Reliance Jio refused to be liable for any past debt of Reliance Communications and refused to give an undertaking for the same. This deal was one of the best way out for Reliance Communication to get lay off the debt and dues. Unfortunately, Mr Ambani could not hit the spot.

 

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Source: Livemint

 High Debt – Insolvency proceedings

RCom is under the total debt of around Rs 46,000 crore and is further liable to around 17 public sector banks. In the long run, the company has failed to carry on its operations efficiently and has been a victim of stiff competition from Reliance Jio, thus bringing the business to a downward trajectory. It has already failed to pay huge amounts to its creditors and the lender market has lost faith in the company. To worse it, the company is now moving into insolvency process under NCLT. In its debt resolution plan, the company was not able to get 100% consensus and approvals on major issues even after around 45 meetings over a span of 12 months, from the lenders which are 40 in number and include Indian as well as foreign entities. This has forced the company to move into insolvency proceedings under NCLT. The company has also taken this call for fast forwarding the resolution process.

Now, NCLT will appoint an IRP who will call on fresh bids for R Com’s assets. Now, this being the scenario, the business tycoon Mr Anil Ambani has lost control over its assets and funds and will not be able to pay the dues of Ericsson AB.

 

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Source: The Economic Times

Way Ahead

The Supreme Court has ordered Mr Ambani to pay the dues within 4 weeks or else he will be sentenced for three months. Complying to the apex court’s order, Reliance Communications has requested the lenders to release funds of around Rs. 2.6 billion, which were received as part from income tax refunds and are lying in the bank account, directly to the Ericsson.

Also, with compliance on the order, a sum of Rs. 1.2 billion has already been deposited with the Supreme Court and Reliance Communications is confident that it will raise the balance amount and pay the dues in the stipulated time.

Further, in efforts to bring down this payment crisis aroused in Reliance Telecommunications, another venture by Anil Ambani, Reliance Capital Ltd. has sought to raise funds through Nippon Life Insurance Co. by inviting them to take full control of their joint Venture Reliance Nippon Life Asset Management.

Now it’s a Do or Die situation for Mr Anil Ambani. The tycoon is putting his full efforts to raise funds so that he gets out of the crisis or else he will have to face repercussions. It will be engrossing to see how the situation unfolds.

References:

https://www.livemint.com/companies/news/supreme-court-holds-rcom-anil-ambani-guilty-of-contempt-in-ericsson-dues-case-1550640019232.html

https://www.business-standard.com/article/companies/lenders-may-refuse-to-take-rcom-s-request-for-release-of-rs-260-crore-119022300037_1.html

https://www.livemint.com/market/stock-market-news/rcom-shares-drop-10-after-supreme-court-holds-anil-ambani-guilty-of-contempt-1550642728356.html

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