Bankruptcy court adds pressure to Reliance Communications and GCX

Bankruptcy court adds pressure to Reliance Communications and GCX

Pressure is mounting on heavily indebted Reliance Communications and its Global Cloud Xchange subsidiary after India’s insolvency tribunal put professionals in place to run three units.

India’s bankruptcy court, the National Company Law Tribunal (NCLT), appointed three separate interim resolution professionals, one each to run Reliance Communications (RCom), Reliance Telecom and Reliance Infratel.

The three are charged with seeking ways to revive the companies, whose debts total around $6.75 billion, and repay creditors. Global Cloud Xchange (GCX) was not mentioned specifically in the move. People close to GCX told Capacity that the unit is ring-fenced from the rest of RCom and is not impacted. 

The NCLT’s action came as the Times of India reported RCom was in advanced talks with Ericsson about settling RCom’s debt in a move to avoid insolvency and bankruptcy proceedings.

Ericsson last year began a winding-up order against RCom in an attempt to force it to pay up. The China Development Bank took similar action over its $2 billion debt, but withdrew the move in January.

The newspaper reported one source telling it: “The amount to be paid [by Ericsson] is being discussed for settlement.” Another source said: “Talks are on but no formal proposal has been made.”

RCom said in a stock exchange statement: “We confirm that RCom and Ericsson are at an advanced stage of discussions to expeditiously resolve commercial issues. This will enable Reliance Communications to exit the NCLT process.” The company added: “RCom is confident to expeditiously proceed with its monetisation plan with Reliance Jio and overall resolution plan with the lenders, keeping in mind the interests of all stakeholders.”

The paper reported that the amount being discussed was 7-8 billion rupees ($100-$150 million), after Ericsson rejected an offer of $60-$70 million. According to reports Ericsson has asked the State Bank of India to guarantee the debt.

Capacity asked senior executives of GCX to comment about the implications of the action by the NCLT. With interim resolution professionals in place, RCom is unable to sell assets without their approval.

This will prevent RCom from selling its spectrum and infrastructure, including fibre and towers, to unrelated rival company Reliance Jio for about $2.6 billion.

Reliance Jio is understood not to be interested in GCX’s international subsea and terrestrial network, and the group had been talking a number of potential bidders about the asset.

In March RCom was talking to Russian industrial group Sistema about GCX, but last month a report said Sistema was still interested in RCom’s enterprise business and data centre operations but no longer wanted GCX.

Under the original Ericsson petitions, insolvency proceedings should have started last week against RCom. The NCLT’s interim resolution professionals now have 270 days to find a solution to revive RCom or put in into liquidation – which takes us to mid-February 2019.

A resolution may well take as long as that. If Ericsson and RCom come to an agreement, both companies will need approval from a higher court to end the bankruptcy process. Special permission would be needed if RCom wanted to sell its assets – including its spectrum, towers, real estate and subsea cables.

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