In a big setback to the lenders, two big ticket debt resolutions of bankrupt wireless telephony providers, Aircel and Reliance Communications (RCom), face uncertainty as the Reserve Bank of India (RBI) has made acquisitions under the Insolvency and Bankruptcy Code (IBC) with prospective effect for asset reconstruction companies (ARCs).
UV Asset Reconstruction Company (UV ARC) had made the winning bid for both the companies but the acquisition was stuck in litigation over transfer of spectrum to the acquirer and the RBI’s earlier ban on the ARCs from investing in bankrupt companies under the IBC. Though the RBI has now allowed ARCs to bid, UV ARC will not be able to qualify for future transactions too as it does not have Rs 1,000 crore of net-owned funds, the source said.
On Tuesday, the RBI allowed the ARCs to participate in the IBC process which was not allowed under the SARFAESI Act earlier. The RBI, however, said for becoming a bidder, the NOF (net-owned funds) of an ARC should be Rs 1,000 crore which will make only three ARCs eligible for future acquisitions.
Banking sources said the lenders will wait for the court’s decisions on both Aircel and RCom accounts and then take a call on their next move.
The options include whether to call for fresh bids or sending both companies to liquidation. Besides, the source said both assets are becoming unattractive for the buyer (UV ARC) as the government has made it clear that the spectrum owned by the bankrupt companies cannot be transferred per the new spectrum rules.
UV ARC did not comment.
In March 2020, the committee of creditors of RCom approved the resolution plan submitted by UV ARC and as per the plan approved by lenders, RCom and its subsidiary Reliance Telecom Limited (RTL), was to go to UV ARC, while the tower company, Reliance Infratel was sold to Reliance Jio.
Reliance Communications, then owned by Anil Ambani, had to shut down its business operations as a result of its high debt burden and a failed merger with Aircel. Aircel, owned by Malaysia’s Maxis, failed to repay bank loans as its revenues and profits plunged. UV ARC won the race to acquire both companies by offering a very low amount – leading to a very high haircut for the banks.
While Aircel was sent for defaulting on loans worth Rs 20,000 crore, lenders had an exposure of Rs 45,000 crore on Reliance Communications. Business Standard