Lenders to Aircel, Reliance Communications hope for faster resolution

Lenders to bankrupt wire­less telephone com­panies, Aircel and Reliance Communications, are pinning their hopes on the Reserve Bank of India’s (RBI’s) panel report recommending asset resolution companies (ARCs) to bid for companies undergoing bankruptcy process.

With the next hearing of the Aircel debt resolution in Delhi High Court set for the third week in November, lenders are hoping the dispute will end soon.

The RBI panel report released on November 2 has recommended that ARCs should be allowed to bid for bankruptcy cases under the Insolvency and Bankruptcy Code (IBC) 2016 via securities trusts or Alternate Investment Fund structures.

“The RBI has to file its reply to the Delhi HC by November third week and the panel report will be brought to the court’s attention by the parties,” said a bank official. Under the present regulatory framework, the RBI has the power to allow ARCs to bid for the assets, according to the panel report, the official said.

UV ARC, which emerged as the highest bidder to takeover Aircel and Reliance Communications, was not allowed to go ahead as the RBI had earlier objected to the Aircel acquisition saying the ARCs cannot acquire bankrupt companies under the IBC laws. UV ARC had moved the Delhi HC in November last year against the RBI’s notice warning of possible cancellation of the ARC’s registration over its move to acquire Aircel. Since then, the matter was pending in court.

Lenders have Rs 20,000 crore exposure to Aircel and the company also owes an additional Rs 14,000 crore to the Indian government as adjusted gross revenue (AGR) dues. UV ARC emerged as the highest bidder for Reliance Comm­unications, too, whose debt resolution is pending with the National Company Law Appellate Tribunal (NCLAT) on the dispute over spectrum dues payable to the government.

Lenders have Rs 45,000 crore exposure to Reliance Communications and the company has to also pay Rs 30,837 crore as AGR dues till and March 2020 and has provided for an additional charge of Rs 4,713 crore for the year ended March 31 this year, according to its annual report.

The RBI panel, which had reviewed the role of ARCs in resolution of stressed assets, has said ARCs may be allowed to participate in IBC as a resolution applicant either through their SR (securities receipts) trust or through the AIF (alternative investment funds) sponsored by them. This is subject to the condition that AUM (asset under management) by the ARC acquired through AIF and IBC should not together exceed the AUM acquired via SR issuance at any time, the panel said.

As of now, the ARCs as secured creditors are allowed to resolve their financial assets through the IBC process, but the current regulatory framework does not allow them to bid as resolution applicants or bidders under the IBC.

The main rationale was that the legal and regulatory design of ARCs is focused on recovery of debt from the borrower and not on resolution of the borrower’s insolvency. At the same time, the Act does provide tools to ARCs which could be used for insolvency resolution (example, change in/takeover of management, debt to equity conversion, etc). However, ARCs in general, have not been using these tools.

The panel said the regulations should allow ARCs to also use the IBC framework. The report said expertise acquired through IBC in resolving borrower insolvency will help ARCs in maximising recovery of dues. However, the ARC should remain asset-light in order to avoid conflict of interest in resolution of assets acquired in the trusts managed by them as compared to assets acquired in their own balance sheet. Business Standard