RCom facing fresh bankruptcy threat

India’s Reliance Communications has been thrown for a loop after the market’s telecoms ministry refused to approve the company’s deal to sell spectrum to Reliance Jio Infocomm.

The ministry has informed the parties that it cannot approve the transaction because it violates India’s spectrum trading norms, the Economic Times reported.

The issue lies in the fact that Reliance Jio Infocomm is refusing to be held liable for RCom’s past spectrum-related dues owed to the government, the report states. India’s spectrum trading rules stipulate that the department can ask both or either operator to pay their dues before approving a spectrum sale.

But RCom has insisted that the requirement of a bank guarantee for the unpaid dues has been substituted by the directions of India’s Telecom Dispute Settlement and Appellate Tribunal and the Supreme Court.

As part of these directions, RCom’s parent company Reliance Group has agreed not to sell a valuable piece of real estate and provide a corporate guarantee in order to cover the guarantee for the unpaid dues.

The immediate consequence of the department’s decision relates to RCom’s unpaid debts to Ericsson. RCom had been relying on the spectrum sale to raise the funds needed to pay these debts and stave off insolvency proceedings initiated against the company by the vendor.

Now Ericsson plans to file a second contempt of court petition against RCom’s chairman and Reliance Group owner Anil Ambani for failing to pay unpaid dues on time despite an order from the Supreme Court, the Times separately reported

Meanwhile RCom has urged the telecom department to reverse course and issue a no-objection certificate over the proposed deal,  LiveMint reported.

The operator has noted that India’s Supreme Court had directed the department to approve the deal as long as RCom meet the direction to provide a corporate guarantee over the unpaid dues.

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