Aircel Insolvency: UV ARC Proposes Rs 6,630-Crore Resolution Plan Funded Through Zero Coupon Debentures

UV Asset Reconstruction Company has proposed a resolution plan for the bankrupt telecom operator Aircel Ltd. and its subsidiaries—Aircel Cellular Ltd. and Dishnet Wireless Ltd.

Under the proposed resolution plan, which has been approved by the committee of creditors, the ARC will issue zero coupon optionally convertible debentures worth Rs 6,630 crore against the secured financial creditor’s claims of around Rs 19,600 crore.

Aircel’s committee of creditors comprises 12 lenders, including 4 foreign banks and domestic banks led by State Bank of India. Aircel’s distributors and lessors have moved the National Company Law Tribunal seeking direction against the resolution professional’s reduction or rejection of their claims. The NCLT will pass an order after hearing pleas filed by the operational creditors and distributors.

Aircel, along with its group entities, has telecom license and spectrum in nine telecom circles and is currently undergoing insolvency resolution process. It had filed a voluntary insolvency petition in March 2018 citing operational difficulties and owes around Rs 27,000 crore to its creditors and vendors on a standalone basis.

Aircel’s fate symbolises the troubles of the Indian telecom sector which underwent turbulent times. The wireless carrier’s problems began in 2011 when investigative agencies started probing its sale to Malaysia’s Maxis Bhd., after owner C Sivasankaran alleged he was pressured to sell the operator.

Here are the key details of the resolution plan:

UV ARC has proposed a consolidated resolution plan for three Aircel Group entities owing to their operational interdependence and common debt structure, which was guaranteed under an obligor co-obligor model. Ravi Kadam, senior counsel representing Aircel’s resolution professional, informed the tribunal that standalone assets or entities didn’t receive any interest from resolution applicants.

Kadam said that the resolution plan was in the best interests of all stakeholders as any failure in approving the plan would result in liquidation of the company, which may drastically affect total recoveries. Accordingly:

• The resolution plan will be funded through a combination of zero coupon optionally convertible debentures repayable over a period of five years from the date of approval of the resolution plan.
• Initially, secured financial creditors will get 24 percent equity while 76 percent equity will be held by UV ARC.
• Financial creditors would get 74 percent equity in case of any default by UV ARC in repayment of debentures.
• Resolution plan proposes payments to operational creditors and employees.

Asset Monetisation

Pradeep Sancheti, senior counsel representing the asset reconstruction company, said UV ARC will fund the resolution plan through a combination of asset sales and tax set-offs. He also said that:

• UV ARC will try to monetise Aircel’s assets—including 2G and 3G spectrum licenses in key telecom circles.
• Aircel’s business operations comprising tower-leasing services and dark fiber lines will contribute to income generation.
• Aircel has unabsorbed losses and depreciation, which can be set off by UV ARC against future profits for a period of eight years.
• The asset reconstruction company will monetise Aircel’s 14,500-kilometre optical fiber network across India. It will make investments to upgrade or repair the network to cover slippages.
• Aircel has receivables or claims against third parties exceeding Rs 700 crore. Cash generated through receivables will be used to make payments against the debentures.
• Aircel entities have cash as well as certain receivables from the Department of Telecommunications.

Resolution Vs Liquidation

Sancheti said the resolution plan balanced the interests of all stakeholders and was better than liquidation because:

• Benefits for claiming unabsorbed losses and depreciation will not be available if the Aircel entities go into liquidation.
• License granted by the telecom department would be revoked in such a case.
• Liquidation would result in distressed sale of assets which would fetch significantly lower value.

What TRAI, Telecom Department Said

Telecom Regulatory Authority of India moved the NCLT claiming the money lying with Aircel in the form of deposits made by subscribers and users’ prepaid balances.

Ashish Piyasi, counsel representing the telecom regulator, informed the tribunal that amount lying with Aircel in the form of postpaid security deposits, disincentives for call drops or outstanding prepaid balance cannot form part of Aircel’s cash or assets and must be deposited with the regulator, according to telecom regulations.

Aircel’s previous distributors also moved the tribunal, seeking direction against the resolution professional for classifying them as operational or financial creditors.

The tribunal reserved its order on the resolution plan and will hear pleas by telecom regulator and distributors next week.