After Anil Ambani's debt-laden Reliance Communications Ltd (RCom) said it would seek a fast-track resolution through the bankruptcy court National Company Law Tribunal to resolve its indebtedness, the shares plunged as much as 54.3 per cent to Rs 5.3 apiece on Monday in Mumbai trading, Reuters reported. According to an ET report, Swedish telecom gear maker Ericsson is set to file an application in the Supreme Court, pleading that all personal assets of RCom chairman Anil Ambani be seized for breaching the top court’s order to repay the Swedish telecom equipment maker its dues.
The glorious past
The fall of an Ambani company to such depths was not foreseeable just a decade ago because the names 'Reliance' and 'Ambani' had become synonymous with success.
Dhirubhai Ambani, who founded Reliance Industries, was an icon of India's equity culture. When he died in 2002, Reliance had over two million shareholders, the largest ever investor base for any Indian company. When it listed in 1977, it had attracted thousands of small investors to a market dominated by state-run financial institutions. The company's annual shareholders' meetings were so well attended they had to be held in a football stadium. The name 'Reliance' spelled shareholder value.
RCom is part of the business of Dhirubhai's younger son Anil Ambani who broke away from elder brother, Mukesh Ambani, in 2006.
How the trouble started
Sectoral stresses such as price wars, heavy debt and plunging profitability that crippled India's telecom sector also took their toll on RCom.
In May 2018, the NCLT had admitted three insolvency petitions against RCom filed by Swedish gear maker Ericsson, which was seeking a payment of over Rs1,100 crore in dues. The insolvency tribunal named three separate IRPs from RBSA Restructuring Advisors LLP to run RCom and its two units, RTL and Reliance Infratel, as part of the bankruptcy proceedings.
But the telco — which was forced to shut its wireless operations under financial pressure late 2017 — moved the National Company Law Appellate Tribunal (NCLAT) and averted bankruptcy proceedings by citing its deals with Jio and Brookfield, and agreed to pay Ericsson Rs 550 crore as a settlement.
But RCom has still not paid Ericsson, triggering contempt of court petitions in the Supreme Court against the telco’s chairman Anil Ambani, with the spectrum sale to Jio having been rejected by the Department of Telecommunications (DoT). The government said the deal to trade airwaves does not conform to its guidelines after Jio wrote to DoT refusing to be held liable for any of RCom’s past dues.
Besides Ericsson, RCom also needs to pay Rs 232 crore to the minority shareholders of Reliance Infratel, including HSBC Daisy Investments. This matter is being separately pursued in the NCLAT.