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India's RCom Struggles to Settle Debt Issues

Gagandeep Kaur
5/31/2018

Beleaguered Indian operator Reliance Communications is struggling to settle the claim of its creditors after racking up debts of more than 450 billion Indian rupees (US$6.63 billion).

Reliance Communications Ltd. has been mired in debt for some time. The operator has struggled to compete in India's mobile market ever since the launch in September 2016 of Reliance Jio, which has caused market mayhem with its low-cost voice and data offerings. Smaller service providers have been forced to shutter operations or merge with bigger players.

RCom's biggest problem currently is a lawsuit issued by Ericsson AB (Nasdaq: ERIC). The Swedish vendor signed a seven-year deal in 2014 to manage and operate RCom's nationwide network infrastructure. Earlier this month, Ericsson submitted a plea with the National Company Law Tribunal (NCLT) alleging that RCom and its subsidiaries Reliance Telecom and Reliance Infratel should face bankruptcy because of their failure to clear debts. Ericsson claims it is yet to receive dues of about $150 million.

In response to this legal move, other lenders, including China Development Bank, State Bank of India and Standard Chartered Bank, approached the National Company Law Appellate Tribunal (NCLAT) to argue against Ericsson's plea for insolvency. The court has appointed representatives to run the three Reliance companies and explore options for repaying lenders.


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RCom is under growing pressure to resolve its conflict with Ericsson. Until it does, it will not be able to sell its wireless assets to RJio. The deal between RJio and RCom (for RCom's wireless assets) was announced in December last year, but the bankruptcy proceedings, initiated by Ericsson, are preventing RCom from proceeding with the transaction. The sale would allow RCom to repay other creditors. (See With RCom Takeover, India's RJio Becomes Even Bigger Threat.)

According to media reports, however, any settlement between the two companies remains unlikely. As a result, RCom may be forced into a sale or liquidation of its assets in a timeframe of around nine months. It is believed to have offered an upfront payment of INR5 billion ($73.6 million) to resolve the issue and to make Ericsson withdraw its petition for RCom's insolvency.

More encouragingly, RCom’s tower arm has reached a settlement with minority investors, including HSBC Daisy Investments, say media reports. It will pay INR2.32 billion ($34.1 million) to minority investors.

— Gagandeep Kaur, contributing editor, special to Light Reading

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UdyRegan
UdyRegan
10/22/2018 | 12:07:33 AM
Re: How was RCOM able to pile up so much debt in the first place?.
I'm reminded of something that someone has told me once before about starting up a business - how we need to spend money in order to make money. Well RC India is clearly not doing this the right way if it's managed to spend that much that it's not millions of dollars in debt. I suppose that they have way too much at stake into the game for them to just bow out gracefully, but it looks like they won't have much of a choice now...
rocket101
rocket101
5/31/2018 | 4:14:38 PM
How was RCOM able to pile up so much debt in the first place?.
Beleaguered Indian operator Reliance Communications is struggling to settle the claim of its creditors after racking up debts of more than 450 billion Indian rupees (US$6.63 billion).

 

How was RCOM able to pile up so much debt in the first place? This company was most likely never profitable, raked in debt after debt without any questioning from anyone. Can the article throw some light on this please? Creditors will end up taking 100% loss, not just a haircut.
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