Insolvency case by Ericsson may hit RCom's merger plans with Aircel


Telecom operator Reliance Communications' (RCom) cup of woes has only been overflowing. The Anil Ambani owned company, and its two subsidiaries, have been hit by a bankruptcy petition filed by Swedish telecom equipment maker Ericsson, which is seeking to recover Rs 1,160 crore in dues.

Ericsson had signed a seven year agreement with RCom in 2014 to operate and manage RCom's telecom network. Under the contract, Ericsson had to manage field maintenance, network operations and operational planning of RCom's 2G, CDMA and 3G wireless networks across all 22 circles.

RCom owes Rs 491.41 crore to Ericsson. RCom subsidiaries Reliance Infratel and Reliance Telecom also owe Rs 534.75 crore and Rs 129.34 crore, respectively to the Swedish company. To reclaim the dues, the Swedish company had filed a petition under the new Insolvency and Bankruptcy Code (IBC) in the Mumbai bench of National Company Law Tribunal (NCLT).

Ericsson sees this petition as a last resort to get its dues back. “Ericsson has done this as a last resort in order to resolve an issue regarding the debt that Reliance owes to Ericsson for services provided under a contract,” the company sources said.

RCom said it “intends to challenge the said petitions.”

However, if the NCLT admits Ericsson's petition to recover its dues, it may throw a spanner in the works of RCom's merger plans with Aircel at least temporarily, say legal experts.

Section 14 of the IBC states that on the insolvency commencement date, the adjudicating authority shall by order declare moratorium for prohibiting among other things, “transferring, encumbering, alienating or disposing of, by the corporate debtor, any of its assets or any legal right or beneficial interest therein.”

The NCLT heard RCom and Ericsson on September 13 and the matter was adjourned to September 26.

The RCom-Aircel merger deal is key for the Anil Ambani Group company's plans to reduce its huge debt of Rs 45,000 crore.

Earlier this year, several ratings agencies, including Fitch and Moody's had downgraded RCom's bond ratings, citing weak operating performance and high leverage.

Hit hard by the intense competition and price war, post the launch of Reliance Jio 4G VOLTE services, RCom reported a consolidated net loss of Rs 1,210 crore in the April-June quarter, versus Rs 90 crore profit in the same quarter last year. Its revenue for the quarter also declined sharply to Rs 3,494 crore from Rs 5,259 crore.

In June this year, lenders accepted the company's strategic restructuring plans and agreed to give it time till December this year to serve its debt obligations.

Apart from the merger of the telecom business, RCom is also selling 51 per cent of its telecom tower business to Canada's Brookfield Infrastructure.

RCom's plan is to transfer part of its debt to the merged telecom entity. That coupled with Rs 11,000 crore from the tower deal with Brookfield, will help it reduce the debt by more than half to about Rs 20,000 crore.

The company has already got approvals from market regulator SEBI, stock exchanges and Competition Commission of India to merge the telecom business with Aircel. But Ericsson had opposed it, since the merger deal did not specify how Ericsson's dues will be paid.

NCLT dismissed Ericsson's opposition to the merger on grounds that the amount owed to it, was less than 5 per cent of RCom's total debt. The tribunal admitted RCom's merger petition in August, but final orders are not issued yet.

If the merger happens, it will create the country's fourth largest telecom company in terms of customers and revenue.

RCom's shares have been under pressure this year, in the wake of the huge debts, weak financial results and poor ratings by agencies. So far in 2017, the shares have plunged nearly 37 per cent. On September 14, the stock closed 1.2 per cent lower at Rs 21.55.

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