5 years of IBC: Debt-ridden RCom awaits court approval to allow UVARCL bid

The Insolvency and Bankruptcy Code’s journey so far has been a mixed bag. The steel sector turned out to be one of the major beneficiaries of the Code. But insolvency proceedings of large companies like Reliance Communications and Videocon have been derailed, in part due to litigation. The Reserve Bank of India’s move not allowing asset reconstruction companies to bid for stressed assets has further protracted the insolvency process.

A Reserve Bank of India (RBI) missive not permitting asset reconstruction companies (ARCs) to bid for bankrupt companies had derailed the insolvency process of Anil Ambani Group-owned Reliance Communications (RCom).

While the RBI is now planning to allow ARCs to bid for bankrupt companies, RCom’s resolution is now stuck in courts. Seeing that the asset value is fast declining, it could turn out to be a winner’s curse for UV Asset Reconstruction Company, a Delhi-based ARC, which won the race to buy RCom, said industry sources. 

“The RBI received a report on the participation of ARCs in September last year, but is yet to take a decision. This is delaying the closing of several transactions since ARCs want to participate in the bankruptcy process,” said a bank chief executive.

In the case of RCom, a delay may result in the ARC losing interest and reneging on its offer, said the executive. The regulatory gap should be closed at the earliest, he advised.

There are other issues that need to be resolved for the insolvency resolution process of RCom to go through. One of them is spectrum.

“We have to wait for the court’s ruling whether spectrum can be sold with or without RCom. Since spectrum’s licence duration is concluding, the company may not be attractive anymore,” said a banker to whom RCom owes money.

RCom was sent to the bankruptcy courts in May 2018 after the telecommunications (telecom) service provider defaulted on Rs 45,000 crore of bank debt.
 

The company had blamed the financial stress in the telecom sector, after the entry of Reliance Jio in 2016 with unlimited free offerings, for its decline. The company had said this was not only unique to RCom, but decimated the entire industry, and led to the shutdown of services by Aircel, Sistema, Videocon, Tata DoCoMo, and several other players, and severely crimped the financials of global giants like Vodafone in its India operations.

Meanwhile, another transaction to sell towers and underground fibre assets to a Jio subsidiary, Reliance Projects & Properties Management Services, is also pending in courts.

Reliance Projects was the successful bidder for Reliance Infratel (RITL) by bidding Rs 4,400 crore for the towers and fibre optic assets through a National Company Law Tribunal (NCLT)-driven resolution process. 

Before NCLT approved RITL’s resolution plan on December 3, 2020, State Bank of India (SBI) classified RITL’s accounts as ‘fraudulent’ on November 10, but did not disclose the same to Jio or NCLT. 

Although SBI later decided to retract the ‘fraudulent’ label from RITL accounts, Jio filed an application in NCLT against the committee of creditors of RITL, seeking the tribunal’s direction to lenders, to share with it the forensic audit report based on which the accounts were classified as fraud.

“It’s been over 18 months (December 2020) since RITL’s resolution plan was approved by NCLT, but the process has not yet reached its logical conclusion due to gridlock between Jio and SBI,” said a banker.

In the meantime, Jio continues to use the tower and fibre assets of RITL.

“Lenders of RCom have been waiting for their dues since December 2020, but there is no clarity yet. We have little option but to wait for the final court order,” said the banker.