In recovering $80 million from tycoon Anil Ambani, the Swedish company’s lawyers expertly played the nascent bankruptcy system. After all, Anil Ambani’s not going to jail, and Ericsson AB got its money. The Swedish company’s lawyers should take a bow. While the future of the Indian tycoon’s shrinking empire remains uncertain, at least questions over his near-term living arrangements were answered on Monday. After avoiding a three-month prison term, Ambani thanked his “respected” elder brother, Mukesh, and sister-in-law, Nita. India’s richest man showed up just in time to help his younger sibling, who has lost 99 percent of his $31 billion net worth in a little over a decade.
The local unit of Ericsson had accepted a Rs 5.5 billion ($80 million) settlement to keep its petition for Reliance Communications Ltd.’s $7 billion bankruptcy in abeyance. The telecom equipment vendor subsequently won a contempt-of-court order to pjailChairman Anil Ambani if the long-delayed payment —which he guaranteed —wasn’t received by Tuesday.
Ericsson’s lawyers will deserve a glowing mention when a history of the early years of India’s 2016 bankruptcy code is written. For an unsecured creditor to walk away with a 48 percent recovery of its claim – while secured lenders wait patiently for RCom to sell its spectrum, redevelop its land assets, and pay them something – shows that the Swedish firm played its cards well.
It also shows the secured creditors, led by the State Bank of India, are relatively poor. They have been deluding themselves since June 2017, when they agreed to an out-of-court restructuring, including a plan to convert part of their debt into equity at almost 25 rupees a share. Luckily, that plan went nowhere. RCom shares closed on Monday at 4 rupees.
A revised restructuring later that year also saw little progress. RCom has decided to exit its money-losing 2G and 3G mobile operations, planned to offload spectrum, fiber, and media convergence nodes to Mukesh Ambani’s hyper-aggressive 4G service. RCom and Jio officially called off the deal on Monday, just as the younger Ambani got bailed out by his brother. With RCom now seeking an in-court bankruptcy resolution, banks are back to square one.
To see just how badly they have bungled RCom, consider the stinging rebuke the lenders received from an appeals judge at India’s bankruptcy tribunal last week: “You (State Bank of India) have failed. JLF (Joint lenders’ forum) has failed. No sale (of assets) took place. You clapped with RCom and claimed you would recover around Rs 37,000 crore ($5.4 billion) from a sale to Jio … You failed …”
Even now, the lenders have no real plan. Jio’s entry has crashed the telecom service prices and led to shutdowns and bankruptcies, including those of RCom. Mukesh Ambani may still have an appetite for assets controlled by his younger brother, but a bidding war is doubtful.
Recent comments by the founder of India’s most successful telecom company, Bharti Airtel Ltd. Chairman Sunil Mittal, should worry the banks deeply. When reporters asked Mittal on the sidelines of the Mobile World Congress in Barcelona if he’d bid for RCom’s spectrum out of bankruptcy, he questioned the premise of airwaves sold by tribunal-appointed resolution professionals. According to an Economic Times report, Mittal said the scope was a sovereign asset belonging to the Department of Telecommunications. He asked why the DoT didn’t take the spectrum back and pool it with its auctions.
Ericsson’s lawyers can bask in their success as secured lenders cringe at that thought. First, they snagged a sweet deal by exploiting RCom’s initial reluctance to enter in-court bankruptcy. Then, they threw in a credible jail risk for Anil Ambani to ensure the deal was honored. Finally, they got their client $80 million. It was nicely done.
