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NEW DELHI/MUMBAI: Reliance Communications and Ericsson are in advanced talks to settle their dispute over the telco’s dues outside the insolvency and bankruptcy proceedings, said people aware of the matter, a move that drove the carrier’s shares as much as 70% higher on Thursday.
“Right now, talks are on but no formal proposal has been made,” one of the people said. Another person said, “The amount to be paid is being discussed for settlement.”
Swedish equipment maker Ericsson has sought an undertaking that State Bank of India, one of RCom’s lenders, will pay up the dues if the Anil Ambani-controlled telco does not clear the settled amount, one person said.
A third person said that the latest settlement amount being discussed is around Rs 700 to Rs 800 crore, after Ericsson rejected an initial offer of Rs 400-500 crore. “SBI is likely to come up with a bank guarantee of the settlement amount”.
Ericsson, which signed a seven-year deal in 2014 to operate and manage RCom’s nationwide telecom network, is trying to recover over Rs 1,000 crore in dues.
The talks to settle the dues came two days after the National Company Law Tribunal admitted three petitions filed by Ericsson against the telco and its subsidiaries and ordered bankruptcy proceedings against RCom. If a pact is reached, the two parties would need to approach a higher court to get the NCLT order repealed.
A settlement outside the insolvency process, if allowed, may help RCom to move ahead with a plan to sell its wireless assets – spectrum, towers, fibre network and switching nodes – to Reliance Jio Infocomm for Rs 18,000 crore and pare debt of Rs 46,000 crore.
The RCom stock surged as much as 70% to Rs 17.90 on the BSE on Thursday, before closing at Rs 16.55 with a 57% gain. The share price had fallen as much as 20% on Wednesday, a day after the NCLT admitted the insolvency petitions against RCom.
A third person said any settlement between RCom and Ericsson could strengthen the case by HSBC Daisy Investments and other minority shareholders against RCom’s tower unit, Reliance Infratel, in the National Company Law Appellate Tribunal. HSBC and the others oppose the sale of Reliance Infratel’s tower and fibre assets to Jio to protect their interests.
RCom declined to comment on the possible settlement of the dues. Ericsson said it doesn’t respond to market speculation. SBI did not reply to ET’s queries.
Earlier Thursday though, the NCLT had rejected RCom’s plea to put off delivering the full order citing its talks with. The full order was made public later in the day, triggering insolvency proceedings against what was once India’s second largest carrier.
According to the NCLT order, insolvency proceedings against RCom were to have started from May 15. The interim resolution professional, who is yet to be appointed, would have 270 days to come up with a solution to bring RCom back, failing which the company could face liquidation. RCom became only the second telco, after Aircel, to be admitted to bankruptcy proceedings.
Ericsson has suggested two to three names as the interim resolution professional and is awaiting approval from the NCLT, one of the people said.
The tribunal, in its order which was seen by ET, admitted Ericsson’s petitions on the grounds that the aspects of debt and default from RCom’s side were proven by the Swedish company. When the gear maker filed the petitions in April 2017, RCom owed it Rs 978.72 crore and the carrier continued to default on payments without disputing the amount or the services provided. The order states the dues to be about Rs 1,012 crore.
“The petitioner (Ericsson) proved existence of debt and default… we are of the considered view that these petitions are fit for admission,” the two-member panel headed by BSV Prakash Kumar said. The bench ordered that a public announcement of the insolvency resolution process be made.
“It appears that Reliance (RCom) failed to adhere to the terms and conditions entered in between Ericsson and Reliance by failing to make payment amounting to approx. Rs 1,000 crore,” it said, adding that the company would not be able to sell or transfer its assets to anyone.
It added that all other legal proceedings against RCom would not move further and this includes Ericsson’s case against RCom in a separate arbitral tribunal.
The order jeopardised RCom’s plan to use funds from the deal with Jio to repay a group of 28 lenders led by SBI. RCom shut its wireless operations in late 2017 after a merger attempt with Aircel fell through. It was unable to sustain operations in an intensely competitive market after the entry of Reliance Jio in September 2016.