Mukesh Ambani’s Reliance Jio decides that it may be too expensive to give brother Anil Ambani’s RCom a lifeline after all
Dec 20, 2018, 12:45 IST
(Image source- Reuters)
Mukesh Ambani’s Reliance Jio has stood by its decision to not cover the spectrum-related debts of Reliance Communications, which is owned by his brother Anil Ambani, according to media reports.
As a consequence of this, the India’s Department of Telecommunications (DoT) has denied a no-objection certification to deal, which was signed by the two brothers’ companies in December 2017.
The move effectively suspends an important lifeline to RCom. RCom was counting on the deal, which involves the sale of around ₹200 billion worth of spectrum to Jio, to restructure its debt and settle its dues with a range of creditors, most notably, Ericsson, which is still waiting on a ₹5.5 billion principal payment in addition to interest.
The DoT first objected to the Reliance Jio’s proposed acquisition of 122.4 MHz of spectrum from Anil Ambani’s heavily-indebted Reliance Communications (RCom) a few days ago.
The reason? Reliance Jio had communicated to the government that it would not assume liability for the spectrum debts that RCom still had to clear with the DoT. The disputed payment in question amounts to ₹29.5 billion.
Hence, the deal was in violation of the government’s spectrum trading guidelines, which states that in such deals the buyer is liable to clear the seller’s outstanding debts. The DoT was not able to approve the deal under Reliance Jio’s conditions and reportedly left it to Mukesh Ambani’s firm to reconsider the decision.
If things stand as they are, RCom will, in all likelihood, have to undergo insolvency proceedings if Ericsson revives the matter in the Supreme Court. Anil Ambani’s firm is currently weighed down by ₹460 billion of debt.
The deal was expected to go through after the Supreme Court ruled on 1 December that RCom could furnish a corporate guarantee of ₹14 billion backed by a deed to a land holding for the spectrum debt, as opposed to a bank guarantee of ₹30 billion - which would have been significantly harder to obtain but it is easier to encash. However, the DoT expected Reliance Jio to assume liability in the event that there was some problem with the corporate guarantee.
Anil Ambani’s RComm gets a lifeline from brother Mukesh Ambani’s Jio as first phase of asset sale is completed
Anil Ambani’s RCom secures extension on crucial debt payment, avoiding bankruptcy and keeping hopes of a bailout alive
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- Mukesh Ambani’s Reliance Jio has stood its ground on a decision to not cover the spectrum-related debts of Reliance Communications.
- As a result, the India’s Department of Telecommunications (DoT) has maintained its decision to deny a no-objection certification to deal, which involves the sale of around ₹200 billion worth of spectrum to Jio.
- RCom was counting on the deal, to restructure its debt and settle its dues with a range of creditors, most notably, Ericsson, which is still waiting on a ₹5.5 billion principal payment in addition to interest.
Mukesh Ambani’s Reliance Jio has stood by its decision to not cover the spectrum-related debts of Reliance Communications, which is owned by his brother Anil Ambani, according to media reports.
As a consequence of this, the India’s Department of Telecommunications (DoT) has denied a no-objection certification to deal, which was signed by the two brothers’ companies in December 2017.
The move effectively suspends an important lifeline to RCom. RCom was counting on the deal, which involves the sale of around ₹200 billion worth of spectrum to Jio, to restructure its debt and settle its dues with a range of creditors, most notably, Ericsson, which is still waiting on a ₹5.5 billion principal payment in addition to interest.
The DoT first objected to the Reliance Jio’s proposed acquisition of 122.4 MHz of spectrum from Anil Ambani’s heavily-indebted Reliance Communications (RCom) a few days ago.
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The reason? Reliance Jio had communicated to the government that it would not assume liability for the spectrum debts that RCom still had to clear with the DoT. The disputed payment in question amounts to ₹29.5 billion.
Hence, the deal was in violation of the government’s spectrum trading guidelines, which states that in such deals the buyer is liable to clear the seller’s outstanding debts. The DoT was not able to approve the deal under Reliance Jio’s conditions and reportedly left it to Mukesh Ambani’s firm to reconsider the decision.
If things stand as they are, RCom will, in all likelihood, have to undergo insolvency proceedings if Ericsson revives the matter in the Supreme Court. Anil Ambani’s firm is currently weighed down by ₹460 billion of debt.
The deal was expected to go through after the Supreme Court ruled on 1 December that RCom could furnish a corporate guarantee of ₹14 billion backed by a deed to a land holding for the spectrum debt, as opposed to a bank guarantee of ₹30 billion - which would have been significantly harder to obtain but it is easier to encash. However, the DoT expected Reliance Jio to assume liability in the event that there was some problem with the corporate guarantee.
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SEE ALSO:Anil Ambani’s RComm gets a lifeline from brother Mukesh Ambani’s Jio as first phase of asset sale is completed
Anil Ambani’s RCom secures extension on crucial debt payment, avoiding bankruptcy and keeping hopes of a bailout alive