The lenders to bankrupt Reliance Communications Ltd (RCom) appears split down the middle on how to go about the resolution process. While domestic banks have leaned in favour of selling the assets in parts to Reliance Jio and UV Asset Reconstruction Co. (ARC) to quickly complete the resolution process and meet the insolvency deadline, foreign lenders want to negotiate harder with bidders to recover a higher value from the sale of assets.
Over the past five days, RCom’s committee of creditors (CoC) has been working closely with the resolution applicants to improve the terms of their offers. So far, Mukesh Ambani’s Reliance Jio has made the highest upfront cash offer of ₹3,720 crore for RCom subsidiary Reliance Infratel, which houses RCom’s telecom towers and 178,000 km of optic fibre network. Jio has also made a conditional offer of ₹800 crore for Reliance Infratel’s holding in Dhirubai Ambani Knowledge City (DAKC), subject to the sale of the property going through.
So far, little is known about UV ARC, a New Delhi-based asset reconstruction company. According to UV’s 2018 annual report, the ARC spent a total of ₹102 crore through FY18 for acquiring distressed assets. Now, UV has offered a resolution plan with staggered payments of ₹16,000 crore for RCom’s wireless spectrum, real estate (including DAKC, the 133-acre IT park in Navi Mumbai), media convergence nodes, and enterprise, and data centre businesses.
However, UV’s resolution plan is contingent on the ARC being able to sell these assets within 30 days of regulatory approvals of asset transfers coming through. “Our main worry is whether this resolution plan will work out," a CoC member said on condition of anonymity. “If UV doesn’t implement the resolution plan within 30 days of getting necessary approvals, there’s a clawback option where these assets revert to lenders. If everything goes according to plan and there is no litigation, we hope to complete the resolution by March."
However, a clutch of lenders within the CoC do not believe these asset sale will happen, and are wary of being left in the lurch. UV has placed a value of ₹8,000 crore on RCom’s spectrum as part of a ₹16,000-crore resolution plan, provided the ARC can find a buyer for the asset. However, the Department of Telecommunications (DoT), which manages spectrum auctions, has a history of disallowing spectrum transfers between private companies. An earlier transaction between Reliance Jio and RCom for the sale of spectrum in 2018 had failed to go through for want of regulatory clearances. DoT itself has made claims of ₹28,000 crore against RCom’s spectrum for licence fee dues, but under the Insolvency and Bankruptcy Code (IBC), the government department qualifies as an operational creditor. As a result, DoT will receive only ₹300-400 crore if UV’s resolution plan succeeds.
“DoT is likely to challenge the spectrum sale in court, further extending the resolution process," the second CoC member said. “With no firm guarantees from UV on payment, the CoC is joined at the hip to a single buyer for the length of this litigation, with no clear picture on how much the final pay-off will be."
The second group of lenders believes that the Reliance Infratel assets can fetch a higher value. “RCom’s optic fibre network itself has a replacement cost of ₹4,500 crore while the highest offer for the towers and optic fibre assets combined is only ₹3,720 crore," he added. “The IBC does not allow renegotiation of onerous contacts. Jio is the main tenant on RCom’s towers and the contracts are below current market rates. But we can’t renegotiate better terms for these contracts. So unfortunately, we are forced to accept whatever value the anchor tenant is willing to pay us."