Will RCom Go The Aircel Way? No, Say Bankers
Earlier this month, lenders to insolvent telecom firm Aircel Ltd. agreed to take a 99 percent haircut on the Rs 19,800 crore in loans owed by the firm to banks. They took home a meagre Rs 150 crore shelled out by an asset reconstruction company.
Aircel’s fate, which symbolises the troubles that India’s telecom industry has gone through over a turbulent decade, led to concerns that banks would need to take steep haircuts in the resolution process of other stressed telecom firms. Most notably— Reliance Communications Ltd., which is also being resolved under the Insolvency and Bankruptcy Code.
Lenders, however, say that the extent of losses seen in Aircel are a one-off and will not be repeated with RCom. Banks are confident of reasonably high recoveries from RCom over the next few months, said three senior bankers on condition of anonymity. These bankers, however, are unable to put a number to the expected recoveries given that the RCom insolvency process is at an early stage.
According to these bankers, RCom has reasonably strong assets and could attract bidders including Mukesh Ambani’s Reliance Jio Infocomm Ltd.
RCom had debt of over Rs 36,000 crore as on March 2018. This is likely to have gone up to over Rs 40,000 crore now, the three lenders quoted earlier said. Banks involved in the RCom insolvency include State Bank of India, Bank of Baroda, Yes Bank Ltd., IndusInd Bank Ltd., China Development Bank, Industrial & Commercial Bank of China, and 20 other lenders.
Assets With Realisable Value
RCom’s optical fibre, tower, media convergence nodes and wireless spectrum have high realisable value, according to the bankers quoted above. The company also owns real estate assets across Mumbai, Delhi, Chennai and Kolkata, which can help in improving recoveries.
According to the company’s annual report for 2017-18, it has:
- Over 122 MHz of 4G spectrum
- 43,000 tower assets
- 2,80,000 km of optical fibre assets in India, U.S., Europe, Middle East and Asia Pacific region
The first of the three bankers quoted earlier said that the consortium of lenders is confident that RCom will attract many bidders under the IBC process, since chances of challenging a decision under the code would be difficult. The successful bidder would end up owning the company’s assets without any attached liabilities, since all debt-related issues would be resolved under the IBC, this banker said.
The second banker quoted earlier said that lenders are confident of recovering a “reasonable” portion of their debt exposure, provided there are no major delays in resolving the account. In resolution of large insolvency accounts like Bhushan Power and Steel Ltd., Alok Industries Ltd. and Essar Steel Ltd., banks have faced considerable challenges due to judicial delays, the second banker added.
Twists & Turns
The resolution process of RCom has seen many twists and turns.
In 2015, RCom entered into an agreement with Aircel to sell its tower and wireless spectrum assets. However, the deal had to be withdrawn in 2017 due regulatory uncertainty and objections filed at the National Company Law Tribunal.
In December 2017, RCom announced that it would monetise its assets to repay lenders. However, the process did not go anywhere till August 2018, when RCom announced a deal with Reliance Jio to sell its telecom assets. After months of back and forth with the telecom ministry and the telecom regulator, the Anil Ambani group firm in March 2019 announced that the RCom-Jio deal had been terminated.
Earlier this month, RCom finally entered the insolvency proceedings of its own accord. The Mumbai bench of the NCLT appointed Pardeep Kumar Sethi as the interim resolution professional for the company. Currently, Sethi is in the process of collating claims from financial and operational creditors to asses what the company owes to them.
According to a stressed asset specialist, who spoke on condition of anonymity, the 43,000 towers that the company owns are good assets and should lead to some recoveries. However, the fibre assets are the most valuable, this person said. In addition, if the company can resolve issues with the Department of Telecom, the sale of wireless spectrum could also improve recoveries.
Even so, after the Aircel experience, lenders should brace themselves for some tough negotiations, this person said.