Pedestrians walk past a Reliance Communications Ltd. Mobile Store in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

China Development Bank Files Insolvency Petition Against RCom

China Development Bank has become the first lender to file insolvency proceedings against Reliance Communications Ltd., according to two people familiar with the matter.

The Chinese lender filed the petition at the Mumbai bench of the National Company Law Tribunal on Friday, the people quoted above said requesting anonymity. It named Alvarez & Marsal (A&M) India as the resolution professional in the matter, the people said.

CDB and A&M are yet to respond to BloombergQuint's queries.

In a stock exchange notification after market hours, Reliance Communications stated that it has not received a notice about any insolvency application filed by CDB.

However, in the interest of all stakeholders, the spokesperson said: “The company is engaged through the JLF with all its Lenders for a successful resolution of the SDR process. The China Development Bank has also been actively participating in the JLF,” the company said in its statement.

Reliance Communications also said that it was surprised at CDB’s “untimely and premature action of filing an application at NCLT”.

“The company continues to remain engaged with all lenders including the China Development Bank and is confident and committed to a full resolution with the support of all the lenders,” the statement said.

The Chinese bank, a financial creditor, joins operational creditors Ericsson India Ltd and Manipal Tech Ltd. which have already filed a petition seeking resolution under the new Insolvency and Bankruptcy Code. If either of the petitions get admitted, all other lenders – including domestic banks – will get pulled into the insolvency proceedings as the NCLT will mandate the creation of a committee of creditors. That committee would then work with the resolution professional to come up with a resolution plan for the company.

They will then have up to 270 days to submit a resolution plan which must also be approved by the NCLT. If the committee and the resolution professional fail to come up with a plan till then, the case goes into liquidation. Reliance Communications has outstanding debt of close to Rs 45,000 crore.

Domestic lenders to Reliance Communications have not taken any major steps against the company after invoking a strategic debt restructuring plan in June. That gave the company 18 months before its account can be tagged a non-performing asset.

The SDR scheme, however, was approved after the company claimed that it would close its tower sale to Brookfield Asset Management and a merger with Aircel Ltd. Both these deals have since failed, and Reliance Communications’ stock has taken a beating.

The telecom operator also defaulted on the coupon payment on its bonds earlier this month, saying it would not be paying any creditors since the account is in standstill.

On Oct. 30, Reliance Communications submitted a resolution plan to its lenders, which included asset sales worth Rs 17,000 crore and a conversion of about Rs 7,100 crore worth of debt into equity. However, lenders asked the company to come up with a better plan as the conversion price did not reflect the current stock price. Converting debt into equity at that price would result in large mark-to-market losses for banks.

The domestic lenders will be forced to convert a portion of the company’s debt into at least 51 percent equity stake in December, as per the norms of the SDR scheme. If they fail to convert the debt into equity, the SDR scheme also fails.