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Reliance Communications Bankruptcy Is Caused By The Telecoms Regulator

Reliance Communications has approached the bankruptcy court in order to try to bring a resolution to its problems. Obviously enough the ultimate cause of this is the attack by Reliance Jio upon the Indian telecoms market. This has driven down consumer pricing of all and any telecoms offerings and meant that some of the incumbents cannot make money.

The most exposed of the majors being Reliance Communications. That the Ambani brothers own the two companies respectively is just added sauce to this tale, not the cause of it all at all.

However, while that’s the obvious ultimate cause the proximate one appears to be the actions of the telecoms regulator. For Reliance Communications needs a way out of its problems. The obvious one being to sell some of its assets so as to be able to pay off its debt bill. A deal was struck – to sell the consumer mobile business, along with the underlying assets, to Reliance Jio.

At which point the telecoms regulator stops the sale:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] Anil Ambani’s company announced in late 2017 that it would sell its main consumer mobile business, including its high-speed bandwidth and over 43,000 cellphone towers, to Reliance Jio. Since then, it has been focusing on corporate clients, providing them with access to internet data centers and its underwater cable network. But the deal with Reliance Jio has been blocked by India’s Department of Telecommunications because of doubts over Reliance Communications’ ability to repay its debts. The company said Sunday that it hasn’t been able to reach a consensus with more than 40 creditors. It expects the bankruptcy court to enable a “fast-track… resolution in 2019, free of all uncertainties and challenges.” The company’s board “remains confident on future prospects,” it added. [/perfectpullquote]

That looks like a seriously odd decision. It’s to repay the creditors that RComm is trying to sell the assets to RJio. What do you mean it can’t make the sale over concerns it can’t repay creditors? Does anyone think there’s another buyer out there willing to pay more?

Which is the reason for the approach to the bankruptcy court. It’s not quite so much a desire to actually declare bankruptcy and thus lose all equity in the business. Nor is it quite an admission that the company is hopelessly bust. It’s that under the protection of, or using a plan of, the bankruptcy court is a method of possibly side stepping the ban on the sale of those assets.

Effectively, we’re replacing the judgement of the court for that of the telecoms regulator as to what is the best method of repaying the creditors.

Now to purely personal opinion. If that sale to Reliance Jio hadn’t been blocked then I don’t think that the approach to the bankruptcy court would have been made. Therefore I think it’s fair enough to insist that the telecoms regulator has caused this bankruptcy approach.

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