Banks call lenders' meet over RCom insolvency case buzz

China Development Bank has moved the National Corporate Law Tribunal against the telco after it defaulted on $1.78-billion loan

Indian banks, which summoned an urgent joint lenders forum this week after China Development Bank moved the National Corporate Law Tribunal (NCLT) for insolvency proceedings against Reliance Communications, will be forced to join the Chinese bank’s petition if admitted, according to bankers.

Reliance Communications owes $1.4 billion to the Chinese bank, which funded its equipment purchases overseas. On a consolidated basis, Reliance Communications owed Rs 49,061 crore to all banks in March this year.

Once the case is admitted by the NCLT, the Indian lenders to Reliance Communications will have to immediately make a provision for 50 per cent of their exposure to the company. "This will happen in this quarter only if the NCLT orders resolution under the Insolvency and Bankruptcy Code,” said a banker.

By filing its plea against Reliance Communications in the NCLT, China Development Bank broke ranks with other secured lenders to recover its dues from the Anil Ambani-led company. “This has taken us by surprise. We were supposed to take a call on a share conversion under the  strategic debt restructuring scheme by January,” the banker added.

Reacting to the Chinese bank’s action,  Reliance Communication’s shares fell by 3.37 per cent to Rs 12.90 a share on Tuesday.  The Reliance Communications stock has declined 62.1 per cent since January, putting its Indian lenders in a quandary over converting its shares at a valuation agreed upon in that month. The woes of Reliance Communications are having an effect on other group companies, which are witnessing a continuous fall in their market value since January (see chart).

Bankers said the Chinese bank’s action was similar to that of Standard Chartered Bank against the Essar group after it defaulted on its loans. Standard Chartered Bank had in May moved the NCLT Bench in Ahmedabad to recover its money. “There are not many options before the Indian lenders now. The assets of the company will have to sold so that the banks can get some of their money back,” said a banker.

According to Reliance Communications, it has real estate worth Rs 10,000 crore and a 100 per cent stake in a cell tower company that was earlier estimated for sale to Brookfield for Rs 11,000 crore.  The valuation of both assets are significantly lower because real estate prices are down and the cell tower firm’s valuation included towers of Aircel, which was to merge with Reliance Communications. While Reliance Communications has calculated its assets at Rs 27,000 crore, including spectrum, global brokerage firm Nomura estimates the company’s assets at Rs 13,900 crore.

Bankers said two cell towers companies were currently up for sale: Indus Towers, a three-way venture among Vodafone, Idea Cellular and Bharti Airtel; and GTL Infrastructure-Chennai Networks. “With two deals in the market, the demand for telecom towers is subdued,” said a banker.