On Friday, Nov. 24, China Development Bank filed an insolvency petition against Reliance Communications Ltd. at the Mumbai bench of the National Company Law Tribunal. By Monday, it had been reported that a large financial creditor had chosen to take the insolvency route against the telecom company.
In a notification to stock exchanges on Monday, Reliance Communications said it was “surprised by the untimely and premature action of the China Development Bank”.
It now appears that the Anil Ambani-led company was not only aware of an impending insolvency petition by the Chinese lenders, but was actively trying to get domestic lenders to agree to an urgent intervention in the matter.
In a letter addressed to the core committee of domestic lenders, Executive Director Punit Garg had stated that the company was made aware of an upcoming insolvency and bankruptcy petition by its Chinese lenders on Nov. 22. Following this, the company had sought an urgent intervention by domestic lenders at a core committee meeting on Nov. 23, Garg added. BloombergQuint has reviewed a copy of the letter sent to the core committee of domestic lenders.
Reliance Communications owes its Chinese lenders, including CDB, ICBC Bank and Export Import Bank of China (CEXIM), more than Rs 13,000 crore.
In a statement issued today on the stock exchanges, the telecom company said a majority of its 31 domestic and foreign lenders have decided to oppose China Development Bank’s insolvency plea. “The lenders also decided to appoint J Sagar Associates as their legal counsel to oppose the said CDB petition at the admission stage itself,” the statement added.
Behind The Scenes
The strategic debt restructuring plan approved by the domestic lenders in June this year, assumed a lot of things. The merger between the wireless businesses of Reliance Communications and Aircel Ltd, the tower business sale to Brookfield Asset Management and approval of the Chinese lenders.
According to a person close to the development, who requested anonymity, the three Chinese lenders were only given observer status in the SDR discussions and thus had no say in the matter.
However, once the deals with Aircel and Brookfield fell through, the Chinese lenders became aggressive again. They wanted to know how, and by when, the company planned to repay their dues. Insolvency cases filed by operational creditors like Ericsson India Ltd and Manipal Technologies Ltd did not help matters.
A restructuring plan submitted by Reliance Communications to its lenders in October is still pending approval as domestic bankers did not agree with certain covenants mentioned. According to the plan, touted by the company as a “zero write-off” scheme, nearly Rs 34,000 crore worth of debt would be retired through a combination of debt-to-equity conversion and sale of assets.
By Nov. 22, the company had been informed that the three Chinese lenders were consulting lawyers on how to invoke the insolvency and bankruptcy code in the Reliance Communications case.
A Week Full Of Struggles
In the same week that the government approved an ordinance to block defaulting promoters from bidding for their assets under the Insolvency and Bankruptcy Code, Reliance Communications reached out to its domestic lenders for an urgent intervention.
Garg proposed to the core committee of lenders that the Chinese lenders be paid up to Rs 97.50 crore to give them “comfort”, so that the resolution plan and SDR scheme could be implemented successfully.
As you are well aware, such an action, especially by a large secured lender group with an exposure of over Rs 13,000 crore will be immediately admitted by NCLT. This will derail the current efforts of the company’s proposed “Zero Write Off Plan” for the Indian banks, and the smooth execution of the SDR.Reliance Communications’ Letter To Core Committee of Lenders
As part of the proposal, Reliance Communications asked lenders to approve the Rs 97.50 crore payment from either the proceeds of a real estate deal with Brookfield, or through third party borrowing to be paid back on priority through asset sales.
After assessing the proposal at a meeting on Nov. 23, the core committee rejected it.
In his letter, Garg noted that the lenders “may not have fully factored in the overall implications of their decision”. He urgently sought a “reconsideration” of the stance taken by the committee as the company had time only till Nov. 27 to inform the Chinese lenders about their decision to pay.
SOS Sent Too Late?
Before the domestic lenders could respond though, CDB filed its petition against Reliance Communications on Friday, kickstarting insolvency proceedings. The NCLT will now hear the lender’s claim and decide on admitting the case and appointing an interim resolution professional.
If the case is admitted, domestic lenders will have to take a major hit on their loans to RCom as the Reserve Bank of India requires them to provide 50 percent against secured and 100 percent against unsecured loans to a company under insolvency proceedings.
CDB and SBI did not respond to queries sent on Wednesday.