Reliance Communication Pays Rs462 Crore to Ericsson; Mutually Terminates Asset Sale Agreement with RJio. What Next?

The Reliance Anil Dhirubhai Ambani (ADA) group company, Reliance Communication Ltd (RCom), on Monday, paid Rs462 crore to Ericsson India in accordance with Supreme Court orders. Details of the nature of funding and how it was routed are not known, except for Anil Ambani’s statement thanking his 'respected' older brother Mukesh Ambani. Separately, RCom and the Mukesh Ambani group have made it clear that they have mutually agreed to terminate sale of its specified assets, including spectrum to Reliance Jio Infocomm Ltd (RJio) of the senior Ambani. This ends any hope for the debt-ridden company to raise funding by selling its assets. It also means that the National Company Law Tribunal (NCLT) will now decide RCom’s future.

The apex court had given a deadline of 19 March 2019 to RCom for paying Ericsson, failing which Anil Ambani would have had to serve a jail term of three months.

In a regulatory filing RCom says, "The requisite payment of Rs550 crore and interest thereon to Ericsson has been completed in compliance of the judgment of the Supreme Court."

With Monday’s payment of Rs462 crore, the debt-laden telco ends its 18-month long battle with Ericsson which had claimed dues for its maintenance services, it added.

Quoting senior advocate Anil Kher, who has been representing Ericsson, a report from Economic Times says, "Ericsson has received the payment along with up to date interest and it will accordingly be withdrawing the petitions filed for insolvency."

In the RCom’s regulatory filing, Anil Ambani stated, "My sincere and heartfelt thanks to my respected elder brother Mukesh, and Nita, for standing by me during these trying times, and demonstrating the importance of staying true to our strong family values by extending this timely support. I and my family are grateful we have moved beyond the past, and are deeply grateful and touched with this gesture.”

Last month, the Supreme Court bench comprising Justices Rohinton F Nariman and Vineet Saran also asked Reliance ADA group to purge contempt by paying Rs453 crore with interest to Ericsson within four weeks. If not paid, three months' jail term will follow, the bench had said.

The bench had directed the Court's registry to give Ericsson Rs118 crore that were earlier deposited by RCom. The apex court said the entire amount that RCom has to pay to Ericsson is Rs550 crore plus the interest that was generated.

Commenting on the deal, Andy Mukherjee from Bloomberg says in recovering $80 million (Rs550 crore) from tycoon Anil Ambani, Swedish company Ericsson’s lawyers played the nascent bankruptcy system expertly. He says, "For an unsecured creditor to walk away with a 48% recovery of its claim—while secured lenders wait patiently for RCom to sell its spectrum, redevelop its land assets and pay them something—shows that the Swedish firm played its cards well."

"It also shows the secured creditors, led by State Bank of India (SBI), in a rather poor light. They have been deluding themselves since June 2017, when they agreed to an out-of-court restructuring, including a plan to convert part of their debt into equity at almost Rs25 a share. Luckily that plan went nowhere. RCom shares closed on Monday at Rs4. As secured lenders cringe at that thought, Ericsson’s lawyers can bask in their success. First, they snagged a sweet deal by exploiting RCom’s initial reluctance to enter in-court bankruptcy. Then, they succeeded in getting a credible jail risk for Anil Ambani thrown into the mix to ensure the deal was honoured. Finally, they got their client $80 million," Mr Mukherjee added.

Separately, in a regulatory filing, RCom said by mutual agreement, it has decided to terminate sale of certain specified telecom assets to Reliance Jio. "The said transactions have become incapable of being consummated in accordance with the terms thereof, on account of various factors and developments since the execution of the said agreements nearly 15 months ago," the company said its filing.

RCom claims that over the past 15 months and after more than 45 meetings, it could not get consent from over 40 foreign and Indian lenders for its proposed transaction with RJio. "The statements of the lenders, as recorded in the order dated 15 March 2019 of the National Company Law Appellate Tribunal, (NCLAT) that it is not possible for them to sell the specified assets, and therefore, the NCLT process for debt resolution should be reinstated. RCom group is committed to a comprehensive resolution of their overall debt, with transparency, certainty and finality, through the NCLT process," it added.

NCLT’s order on 4 February 2019 had also restrained sale, transfer or alienation of any movable or immovable property of RCom, Reliance Telecom (RTL) and Reliance Telecom Infrastructure (RITL).

Last year in April, the NCLAT as well as the Supreme Court had allowed RCom to sell its tower and fibre assets. RCom’s plea challenging the High Court stay was supported by the consortium of banks headed by the SBI, which had contended that the sale of spectrum and optical fibre assets would fetch Rs25,000 crore—part of Rs45,000 crore that RCom owes them.

On 28 December 2017, RCom had signed an agreement with RJio, a subsidiary of Reliance Industries Ltd (RIL), for selling certain specific assets and for change in allotment of certain specific spectrum.

RCom failed to get consent from lenders and also necessary approval from department of telecom (DoT) for passing on its spectrum to RJio through mutual agreement.