Indian banks dallying on RCom’s $7 bn debt may spell trouble for Modi govt

Indian banks dallying on RCom’s $7 bn debt may spell trouble for Modi govt
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New Delhi, Feb 4: For a capital-starved economy, India shows little urgency to extricate good money stuck in failed businesses.
That was going to change after the adoption of a modern bankruptcy regime in May 2016. Alas, legal improvements notwithstanding, the culture of extending the life of bad loans to big businesses and pretending nothing is wrong with them is proving too hard to end.
Take Reliance Communications Ltd. After more than a year and a half of kicking the can down the road, the erstwhile Indian telecom operator is filing for bankruptcy.
Even in March 2017, when RCom owed creditors $7 billion, it was clear that tycoon Anil Ambani’s telecom venture stood no chance in a crowded field against elder brother Mukesh Ambani’s shiny new 4G carrier, Reliance Jio Infocomm Ltd., and its offer of cheap data and free voice calls.
Yet in June 2017, creditors decided to go along with an out-of-court restructuring, wherein RCom would merge its wireless carrier with rival Aircel Ltd.; sell its cellular towers to Canada’s Brookfield Infrastructure Group; swap some debt for equity; and deleverage.
However, Aircel didn’t survive; RCom was forced to shutter its own mobile service; Brookfield developed cold feet; and creditors demurred from taking RCom equity after its share price collapsed. But even then, Indian banks didn’t knock on the doors of the bankruptcy courts. In December 2017, after the company had defaulted on a $300 million dollar bond, they backed a new plan by the younger Ambani brother to offload spectrum, towers, fiber and media convergence nodes to the elder sibling’s Jio. Together with commercial redevelopment of RCom’s Mumbai property, the proposal was supposed to lead to a decent recovery. This time last year, dollar bondholders expected to get back almost 70 cents on the dollar.
However, 2018 went by with little progress on the 250 billion rupee ($3.5 billion) deleveraging plan. The spectrum sale didn’t go through because India’s telecom department wanted a guarantee for the fees it’s owed for the airwaves before they would allow a new owner. Jio balked at that demand. An additional complication was equipment provider Ericsson AB, an operational creditor that threatened to drag RCom into bankruptcy; won a settlement offer; but never saw any checks.
Ericsson asked a court to put Ambani in civil prison. All this has made the bondholders pessimistic: the current market price of the notes, which a majority of investors agreed in August to restructure at a steep haircut, suggests recovery rates of 26 cents on the dollar. Even secured creditors of subsidiary GCX Ltd., which boasts the world’s largest privately owned undersea cable system, are jittery. Fitch Ratings has downgraded GCX’s dollar bond, due for refinancing this year, and said a default looks probable. With RCom entering bankruptcy, what it owes GCX may be impossible for the subsidiary to recoup.
RCom’s insolvency filing shows how fruitless the out-of-court process has been. “Despite the passage of over 18 months, lenders have received zero proceeds from the proposed asset monetization plans,” the statement said.
It’s unclear if the older Ambani sibling might still be interested in RCom’s spectrum and towers, or if other bidders will step up, and how much of a haircut is now inevitable.
So far, family members of “promoters” —India’s term for controlling shareholders — were barred from bidding for their bankrupt firms without making banks whole first. But thanks to a recent court ruling, that ban now applies only to relatives involved in the business.