Reliance Communications looks to avoid action in NCLT, seeks time for Aircell merger, tower business sale

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Published: July 28, 2017 6:38:37 AM

Reliance Communications (RCom) on Thursday sought time from the Mumbai bench of the National Company Law Tribunal (NCLT) as it hopes to convince China Development Bank (CDB) to withdraw its objection to the sale of its tower business and the proposed merger with Aircel.

Reliance Communications, RCom, NCLT, Aircell merger, business sale, National Company Law Tribunal, Aircel, China Development Bank, RCom’s counsel, CDB, SDR scheme, Brookfield InfrastructureThe telco’s gross debt at the end of March 2017 was Rs 45,000 crore; loans from local lenders stand at Rs 25,000 crore. (Image: Reuters)

Reliance Communications (RCom) on Thursday sought time from the Mumbai bench of the National Company Law Tribunal (NCLT) as it hopes to convince China Development Bank (CDB) to withdraw its objection to the sale of its tower business and the proposed merger with Aircel. RCom owes the Chinese lender close to Rs 9,000 crore. The telco’s gross debt at the end of March 2017 was Rs 45,000 crore; loans from local lenders stand at Rs 25,000 crore. RCom’s counsel Janak Dwarakadas said the company was hopeful of arriving at some arrangement with CDB. He added that Standard Chartered Bank and HSBC have both given their consent to admitting the case, albeit with certain riders. Both the foreign lenders have said that they would not object to the case being admitted but RCom would need to take their approvals at a later stage.

Telecom equipment vendor Ericsson India also objected, saying RCom has not been paying it for the past two years. According to Ericsson’s counsel, RCom owes it close to Rs 1,200 crore and has not repaid the dues despite the issuance of post-dated cheques. A clutch of creditors (secured and unsecured) have objected to the sale and merger alleging that a meeting of creditors was not convened by RCom and their approval was not sought. On its part, RCom cited a Mumbai NCLT order dated March 15 and said the court had granted it some dispensation, to which the objectors said the order was misinterpreted by RCom. The telco informed the court on Thursday that it does not intend to call a meeting of the creditors as it believes it was not necessary.

While Dwarakadas argued the case should be admitted and all objections could be heard at a later stage, Darius Khambata, appearing on behalf of CDB, said objectors should be heard before admission. “We are running against time and if the deals are not cleared by November, RCom will turn non-performing,” Dwarakadas informed the court, adding that nine major lenders including State Bank of India (SBI) with loans of Rs 9,000 crore have already approved the deals. Last month, lenders to RCom had given the telco seven months’ time — from June to December — to pare debt and service loans regularly. The breather is part of a strategic debt restructuring (SDR) scheme by which lenders can convert loans into equity after seven months. In a spate of downgrades by ratings agencies in May, RCom’s ratings were lowered following delayed interest and principal payments on non-convertible debentures.

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RCom had told lenders earlier this month that it would reduce its debt by about 60% through the sale of its tower business and via the merger with Aircel. The company plans to repay Rs 11,000 crore of its Rs 45,000-crore debt from the proceeds of the sale of a majority stake in its tower business to Brookfield Infrastructure. Another Rs 14,000 crore of debt will move from RCom’s books to the joint venture with Aircel. Sources added that RCom plans to service the yearly interest payments of around Rs 1,500 crore on the remaining debt from an expected revenue of Rs 8,000 crore after the merger and sale.

RCom has received the approval for the merger from the Securities and Exchange Board of India and is awaiting a nod from the NCLT. According to the merger terms, both RCom and Aircel’s controlling firm Maxis Communications will hold an equal stake of 50% each. According to a Bloomberg report, RCom classified Rs 22,550 crore ($3.5 billion) of borrowings as non-current liabilities as of March 31 pending formal confirmation by lenders for waivers on certain loan covenants, citing notes from its earnings results published on May 27. The company reported a net loss of Rs 948 crore in Q4FY17. The firm’s debt-equity ratio stood at 1.61 times on March 31 versus 1.39 a year ago while the interest coverage ratio fell to 1.84 times from 3.3 times a year ago.

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