NCLT accepts Ericsson's insolvency petitions against RCom

Reliance Communications

Reliance Communications stock falls up to 20% after NCLT admits Ericsson's insolvency petition against telco

Ericsson has sought Rs1,154 crore from Reliance Communications (RCom) and two of its arms-Reliance Telecom Ltd and Reliance Infratel Ltd-after having signed a seven-year deal in 2014 to operate and manage the telecom firm's nationwide network.

On May 14, NCLT Mumbai admitted three insolvency petitions filed against RCom and its subsidiaries, Ericsson, which will now its plans of selling its telecom assets. The tribunal admitted the petition on Tuesday, which could potentially result in delaying RCom's plans to sell assets to lighten its debt load.

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Ericsson has had 9,000 employees working on RCom and its subsidiaries and has not received RCom's unpaid dues despite many promises and re-negotiations on payment schedules. The company is set to report earning for the quarter ended March on May 19.

At NSE, shares of the company dived 20.56 percent to Rs 9.85. The company and two of its subsidiaries will decide on the next course of action after studying the detailed order, RCom said in an exchange filing. The stock is down 68.85% during the last one year.

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As the siblings are majority shareholders and part of management at their respective companies, a bid by Jio may be ineligible, said Shahezad Kazi, a lawyer with Mumbai-based S&R Associates. The rule is aimed at blocking back-door entry by delinquent owners.

However, Tuesday's order from the NCLT means that the asset sale would now be overseen by a court appointed administrator.

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Worries about the ability of, as the company is widely known, to repay its near $7 billion debt to Indian and foreign banks have been mounting for more than a year. Apart from Reliance Communications, the other ADAG stocks Reliance Naval and Engineering (28%), Reliance Power (8%), Reliance Capital (5.3%) and Reliance Infrastructure (4.2%) have also moved up sharply in today's session. The law is now being tested through bitter court battles.

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