India’s RCom restructuring plan clouded by CDB insolvency action

Indian telecom player Reliance Communications’ (RCom) planned debt restructuring could be complicated by China Development Bank’s (CDB) triggering of insolvency action against the company.

CDB initiated insolvency proceedings on Friday at India’s National Company Law Tribunal (NCLT), the bank said in a statement to Reuters, adding that a large amount of principal and interest from RCom was overdue.

A source had earlier told Reuters CDB was seeking to recover more than $1.5 billion from RCom.

RCom, backed by wealthy businessman Anil Ambani, has struggled with its heavy debt load and a string of losses, leading to a partial shutdown of its operations. With net debt of 443 billion rupees ($6.88 billion) at the end of March, the company is the most-leveraged among listed phone carriers in India.

In its statement, CDB said it has sent a notice of the proceedings to RCom and that it would work with relevant parties on restructuring via a legal process.

RCom said on Monday it had not yet been served with any notice of an application by CDB. RCom had no immediate comment after the CDB statement on Tuesday.

RCom had also said it remained engaged with all lenders, including CDB, and was confident and committed to a previously outlined out-of-court debt restructuring plan that proposed a conversion of 70 billion rupees in loans into RCom equity.

CDB’s action follows two other insolvency petitions filed by non-financial creditors including telecom gear maker Ericsson. CDB’s action, however, is the first by one of RCom’s banks and could complicate its out-of-court restructuring plan.

RCom’s creditor banks are reluctant to take part in a debt-forequity swap because the company’s shares are trading at half the price of the proposed swap.

The banks are scheduled to meet this week to discuss their next move, as well as the CDB insolvency plea, according to a senior banker at one of the Indian lenders.

“If the NCLT admits the plea, then we have no other option but to file our claims,” said the banker, who asked to remain anonymous. “If the SDR (strategic debt restructuring) cannot be finalized, then the most likely option is insolvency.”

It was not known when the NCLT will hear the CDB plea. It has yet to admit the Ericsson petition, which is seeking to recover 11.55 billion rupees.

As part of the debt restructuring, RCom is under a debt standstill arrangement with no payments of interest or principal debt being made to lenders or bondholders.