LIFE AFTER RCOM – OF COURSE IT EXISTS!

By Ruma Dubey

If you can ignore the drama in Karnataka, the obvious BIG story today is Anil Ambani’s Reliance Communication (RCom). The top loser on the bourses since morning, the fear seems to be shaping into a reality – it might go bankrupt very soon. Now that would be the biggest bankruptcy of India.

Yesterday, the National Company Law Tribunal (NCLT) went ahead and accepted the petition from Ericsson AB, which in short means, NCLT has accepted that Rcom be placed in the insolvency proceedings. Ericsson had petitioned for recovery of Rs.11,600 crore as unpaid dues from Rcom.

Rcom is sure to appeal the verdict with a tribunal in New Delhi but this for now puts in limbo its plans to sell  $3.7 billion assets - airwaves, towers and fibre assets, elder brother’s company Reliance Jio Infocomm.

If the NCLT goes ahead with the proceedings, it would mean that there would be a long drawn process, which could take up almost the entire year to work out either a debt repayment plan or liquidate the company. RCom owes over Rs 45,000 crore to 31 banks, apart from China Development Bank. 

Whatever be the outcome, for the next couple of months at least, everything at Rcom comes to a standstill. The asset sale to Jio was its life line and with that itself under threat, Rcom at the moment seems to be in very dire straits.

Many have been expecting this news and did not come as shocker. In fact many have started labelling the company as the next ‘mini L&T.’ From being recognized as a telecom group, it could reinvent itself as a defence player. The company is making jet fighter planes and is securing some good Govt orders. It has commenced construction of a manufacturing facility of Dassault Reliance Aerospace (DRAL) in Nagpur. But the question there also is whether the company stay afloat? Two days ago, VIjaya Bank called out Reliance Naval as a NPA. This comes a few days after the company’s  auditors had expressed doubts about the company’s ability to continue as a “going concern”. It owes more than Rs.9,000 crore to more than two-dozen banks, mostly state-run, led by the troubled IDBI Bank.

Then there is Reliance Infrastructure. Early this month, in a JV with Italian firm, Astaldi, the company won order worth Rs 7,000 crore for Versova-Bandra Sea Link Project in Mumbai. And it also has bagged huge orders from the Mumbai Metro. What makes its books look relatively better is the sale of its power generation and distribution business in Mumbai to Adani Transmission for Rs.13,251 crore.

Reliance Power continues to struggle with its UMPPs and recently inked a Rs.40,000 crore debt with PFC for the two projects. It has seen some serious erosion of market cap and trust like the rest of its companies – Reliance Poeer’s market cap stands at Rs.9,300 crore as against the Rs.11,700 crore it raised through its infamous IPO in 2008.

Reliance Capital has a better market cap than Reliance Power – the third highest valued in the ADAG group at Rs.9400 crore. The top value goes to Reliance Nippon at Rs.14,800 crore and then Reliance Infra at Rs.10,100 crore.

For all the negativity which the ADAG group currently faces, it did make one wonder as to why then did its Rs 1,540-crore IPO of Reliance Nippon Life Asset Management (RNAM) got overall subscribed 81.49 times? As against the IPO price of Rs.252, it is today quoted at Rs.242 and its been quite a while since it went over the IPO prices.

So there is life for ADAG after Rcom. It could reinvent itself as a major defence or EPC play. But the question remains – will you trust your money with this Ambani?