Billionaire Mukesh Ambani-controlled Reliance Industries (RIL), India's largest company by market capitalisation, may become the first company to throw its hat into the ring for bankrupt firm, Reliance Communications (RCom), which was the flagship company of his younger brother Anil Ambani's group. According to highly placed sources, Reliance Jio plans to submit the bid for the assets of RCom that will come up for sale during the insolvency process.
"The acquisition is important for the Ambanis in two ways. RCom's airwaves and towers will boost the services of Reliance Jio which is getting ready to roll out 5G. Secondly, the bankrupt firm houses the land assets in Navi Mumbai (Dhirubhai Ambani Knowledge City or DAKC), which Dhirubhai acquired in the 90s (through the acquisition of ICI polyester fibre business),"says an executive close to the developments. During the time of default, RCom had a debt of Rs 46,000 crore.
The sources say that Jio transferred its fibre and tower arms to two infrastructure investment trusts (InvITs) and cut its debt to create space for acquisition of RCom and 5G investments. The transfer of assets to InvITs has made Jio as an asset-light company. According to other sources Jio's legal department is closely observing the modalities involved in the insolvency process.
In March, with a dramatic intervention, Mukesh Ambani saved his younger brother from imprisonment by paying the dues of Rs 580 crore owed by Anil's firm to the Swedish telecom equipment maker Ericsson. RCom also has an emotional connect with Mukesh Ambani as he envisioned the undivided family's dream of getting into the telecom business in the early 2000s.
Jio is already using RCom's airwaves in the 850 MHz band in 21 circles, including Mumbai. Just before RCom defaulting its loans, the company terminated a Rs 7,300-crore deal to sell 122.4 MHz of spectrum in the 850 MHz band to Jio mainly due to DoT's refusal to grant approval as Jio did not agree to bear RCom's historical dues. Reliance Jio had also agreed to buy 43,000 telecom towers and other wireless infrastructure of RCom as part of the Rs 18,000 crore deal. The only deal which materialised was the sale of switching nodes and fibre for Rs 5,000 crore. RCom also had a plan to sell part of its real estate to Canada's Brookfield.
RCom planned to develop DAKC, a 133-acre registered IT park in Navi Mumbai, to create 30 million sq ft of commercial space. The valuation of DAKC, according to an HDFC Realty study, was estimated to be over Rs 25,000 crore, RCom Chairman Anil Ambani had said at the company's shareholders' meet in 2018.
After failing to execute the asset monetisation plans, on February 1, RCom decided to file for bankruptcy. Last month, National Company Law Tribunal (NCLT) had appointed Deloitte's Anish Nanavaty as the Resolution Professional (RP) for RCom and its subsidiaries. The new RP is expected to submit a report on the insolvency process at the NCLT on July 23. The lenders have claimed Rs 88,000 crore in RCom and its two units--- Reliance Telecom and Reliance Infratel.
"The banks will have to take huge haircut in RCom's case as the depreciation is hefty in the sector where the technology is changing every day. At present only Reliance Jio has the financial muscle to take over the bankrupt firm. Otherwise, RCom will go to liquidation," said an executive from the telecom industry.
Copyright©2021 Living Media India Limited. For reprint rights: Syndications Today