The Supreme Court of India has directed Reliance Communications' chairman Anil Ambani to clear Rs 550 crore worth of dues of its operational creditor Ericsson or face jail term of three months. The apex court has come down heavily on Ambani for his 'cavalier attitude' towards the court's previous orders. While rejecting the RCom's and Ambani's unconditional apology, the court has directed Ambani, and two directors of his telecom arm, to pay Rs 1 crore fine. For a sinking ship like RCom, this is going to be a big blow, and especially for Ambani who has gone from a celebrated telecom tycoon to be on the wrong side of the law.
What can Anil Ambani do to avoid jail? Pay up, that's the most obvious way for him to stave off incarceration.
Since he has already asked for two extensions - one in October and another extension request was withdrawn - it seems that he does not have money to pay back Ericsson. Ericsson's lawyers, however, have argued that Ambani has not only sold assets worth 'hundreds of crores' but he had enough money to get into deal with Dassault Aviation (as an offset partner for Rafale jets) and fly around in private jets.
In a statement after the Supreme Court's order, RCOM said, "we respect the Supreme Court judgement. The RCom Group shall comply with same."
Though Ambani has (theoretically) many options but executing them is going to be challenging. Broadly, he can do three things: sell RCom's assets to Reliance Jio, a deal which was signed in 2017; or take help from other Reliance Group companies - Reliance Capital, Reliance Infrastructure and Reliance Naval and Engineering; or sell off RCom's assets (global cloud xchange and real estate) which were not part of the Jio deal.
RCom's deal with Jio is almost scrapped after Jio backed off when the government refused to give protection to Jio against RCom's past liabilities. RCom has recently filed for bankruptcy with National Company Law Tribunal (NCLT) citing regulatory hurdles in concluding its Jio deal and high debt burden.
Ericsson is contesting RCom's bankruptcy move in NCLAT, and has got a relief from the tribunal which ruled that RCom will not be allowed to sell or transfer its assets. In the view of Supreme Court's decision, it is likely that RCom's insolvency petition might not be accepted in NCLT (until Ericsson is paid off) because Ericsson moved the apex court before RCom's decision to file for bankruptcy.
The option of selling the core telecom business to Jio - or anybody else for that matter - is, thus, off the table. Seeking help from other group companies would raise corporate governance concerns among minority shareholders, and this option has to be ruled out. For the remaining assets to be sold, Ambani has to find a suitable buyer - something that he has been doing for the past few years, but in vain. All in all, the executable options for him are fairly limited.
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