The Department of Telecommunications (DoT), on Tuesday, told Reliance Communications and Reliance Jio Infocomm that it cannot approve their deal to trade airwaves as it does not conform to its guidelines.
The move has dealt a big blow to Anil Ambani-owned Reliance Communications (RCom) efforts to repay creditors and avoid insolvency proceedings.
The trading rules clearly say DoT can ask both the operators or any one of them to pay the dues. Since Jio has imposed conditions,we cannot accept it (the deal) as it goes against the guidelines, a senior DoT official told the Economic Times. Now the ball is in their court. They have to decide and comeback to us. Till then, this deal is off the table, the official said further.
As part of its efforts to reduce its debt, Anil Ambani-led RCom had, in December 2017, signed a Rs 250-billion deal with elder brother Mukesh Ambani’s Reliance Jio. The deal included the sale of assets mortgaged with different banks to avoid insolvency proceedings.
RCom expectedto raise Rs 180 billion from the sale of its wireless assets to Jio. Anil Ambani also planned to sell real estate assets to Canada’s Brookfield, and paresome of its Rs 460-billion debt.
Earlier, the apex court had asked RCom to furnish a corporate guarantee of Rs 14 billion within 2 days, after which the DoT would have to give a No Objection Certificate (NOC) for the RCom-RJio spectrum sale deal within 7 days.
Things seemed to be going as planned. RCom was able to furnish the guarantee amount and the DoT agreed to give it the green signal. However, a letter from Jio is said to have thrown a spanner in the works.
Jio’s letter to blame?
Reliance Jio had asked the DoT to approve its spectrum trading deal with Reliance Communications only after it has made sure that Anil Ambanis company has paid all its past liabilities as per the licence conditions.
In a letter to the DoT, Jio stated that though RCom has offered a corporate guarantee of Rs 1,400 crore towards settling its dues, the licence conditions stipulate that it also has to give a bank guarantee. Jio asserted that it will not be liable to pay RCom dues should the DoT accept a corporate guarantee instead of a bank guarantee.
Industry experts are of the view that Jios letter could further delay the spectrum trading deal as the DoT may now have to review the RComs offer to pay corporate guarantees.
What is the deal?
Mukesh Ambanis Reliance Jio agreed to buy spectrum, towers, and other wireless infrastructure of his younger brother.
As per the deal, Jio was to acquire assets under four categoriestowers, optic fibre cable network, spectrum, and media convergence nodesfrom RCom.
RComs shares plunge
Shares of Reliance Communications fell over 12 percent in early trade on Wednesday after the DoT refused to green-light the companys deal with Reliance Jio Infocomm.
Reliance Communications stock plunged13.33% on the NSE to hit an intra day low of 13.65 level. On the BSE, the stock fell 12.74% to 13.77 level compared to the previous close of 15.78. The stock has lost 60% since the beginning of 2018 and gained 14.72 percent during the last one year.
Elton Gomes is a staff writer at Qrius