Packaging for Reliance Communications Ltd. internet dongles sit on display at a mobile phone store in Mumbai, India (Photographer: Dhiraj Singh/Bloomberg)

RCom’s Lenders Not In Favour Of Using Jio Deal Proceeds To Pay Ericsson

Fresh-off a Supreme Court approval for the sale of its telecom assets to Reliance Jio Infocomm, the Anil Ambani-led Reliance Communications Ltd. might be facing another struggle in the coming weeks. One from its lenders.

Bankers led by State Bank of India would be expected to approve a Rs 550 crore settlement offer to Ericsson India Ltd., from the proceeds they receive through the Jio deal. But not all are in favour of this.

According to two senior public sector bankers, who spoke to BloombergQuint on conditions of anonymity, the lending consortium would not be inclined to part with the funds they recover through RCom’s asset monetisation plan. The matter will need to be discussed at consortium meeting, they said.

RCom has claimed that the deal will help lenders recover Rs 18,100 crore, albeit over time. Lenders have dues exceeding Rs 42,000 crore against RCom.

Claims Over Asset Monetisation Proceeds

On Friday, the apex court said that the Jio sale can move ahead as planned, while also instructing RCom to pay Ericsson India, an operational creditor, its settlement amount. The payment to Ericsson India would need to be made before October 1, which is when the Supreme Court will hear the matter again, Bloomberg News reported.

Earlier, in an order on May 30, the National Company Law Appellate Tribunal had put a stay on Ericsson India’s insolvency proceedings against RCom till September 30. This was on the condition that Ericsson India be repaid its dues by then. The NCLAT allowed bankers to continue with the asset monetisation programme, which has been initiated before the insolvency process began. The proceeds from any such programme would have to be held in an escrow account by the bankers, the tribunal had ordered.

In case the settlement is not made within this time-frame, the insolvency proceedings would continue and any proceeds recovered through the asset monetisation programme would have to be reversed and the funds would have to be repaid to RCom.

A person close to the developments confirmed that RCom has been trying to settle the dues with Ericsson India using bank guarantees. However, Ericsson India has rejected this offer and has been asking the company to repay its dues in cash. After negotiations did not go their way, Ericsson India filed a petition at the Supreme Court on Thursday, requesting that the insolvency proceedings not be stopped.

RCom, Ericsson India and SBI did not respond to queries sent by BloombergQuint on Friday.

RCom: The Story So Far

RCom has been under stress just like the rest of the telecommunication industry. In June 2017, lenders led by SBI had agreed to invoke the strategic debt restructuring scheme in the company, which eventually failed to take off in September 2017. At the time, the company had announced the implementation of an asset monetisation plan which would ensure that the bankers are paid in full, without any haircut.

In December 2017, RCom announced that it had signed an agreement with Jio to sell all of its telecom assets, which included spectrum, telecom towers business and land that the company owned. However, this year, Ericsson India and Tech Mahindra Ltd. had thrown a spanner in the works, initiating insolvency proceedings against RCom. Eventually Tech Mahindra withdrew its plea, but Ericsson India persisted.

The Mumbai bench of the National Company Law Tribunal allowed Ericsson’s insolvency plea to be admitted and even appointed an interim resolution professional in the case. In this context, RCom approached NCLAT to get the insolvency proceedings quashed, arguing that such a move could impact the recovery that lenders are expected to make in the case.