Anil Ambani’s Reliance Communications (RCom) filed for bankruptcy on Friday, February 1. The move comes following his struggle to sell RComs assets to brother Mukeshs Reliance Jio, after Ericsson India Pvt Ltd, a telecom and manufacturing firm, petitioned the Supreme Court to arrest him.
Why is RCom filing for insolvency?
Ericsson India began proceedings against the RCom chairman for allegedly “not complying with its order to clear dues of ?550 crore towards the completion of the asset sale with Reliance Jio Infocomm Ltd. Erisson has filed three insolvency petitions against Anil, because it is yet to receive ?1,1,50 crore in dues from RCom. Ericsson has also demanded Anil’s detention in a civil prison till he made the payment.
Livemint reported that Justice R F Nariman allowed RCom to deposit ?118 crore with the Supreme Court registry, and the company agreed to via two demand drafts. However, Anils huge debt of ?46,000 crore and his inability to sell assets to Reliance Jio forced RCom to file for insolvency.
When did this issue begin?
Since their father Dhirubhai Ambani’s death, Mukesh and Anil have been in a massive conflict over who will control the Reliance Group. In 2006, the two decided to split the business between themselvesMukesh gained control of the oil, gas, petrochemicals, and manufacturing industries, while Anil took over telecom, electricity, and finance. Later, the two began feuding in public, as well: Anil questioned the terms of a gas supply agreement between them, Mukesh commented on Anil engaging in lobbying, and so on.
In 2016, RCom attempted a three-way merger with Aircel and MTS, because it became a weak presence in the telecom market after Tata Teleservices was acquired by Airtel. It was also struggling with the huge debt, which amounted to ?44,345 crore in 2017. If successful, this merger would have given Anil massive market share, subscriber base, and network coverage, as well as helped to clear some of the debt.
And when did it escalate?
However, because of the various cases against the company [Aircel], the Department of Telecommunications (DoT) would not give the green signal for the merger, and hence, RCom decide to pull out, Business Standard reported. After this, RCom began facing a number of issues, such as dwindling subscriber numbers and an inability to attract investors, besides the heavy debt.
As Airtel, Vodafone, and Idea began adding millions of new subscribers, RCom fell further behind in terms of financial performance and profit. To help Anil pay off his debts, Reliance Jio agreed to buy RComs assets, namely spectrum, towers, and other wireless infrastructure. However, when Reliance Jio sought assurance from the government that it wont be held liable for RComs past dues, the DoT rejected the Jio-RCom deal citing non-conformation with governments trading norms.
Soon, companies that provided services to RCom began demanding their dues. Among these, Ericsson filed the petition for recovery of ?1,150 crore, pushing RCom to declare insolvency.
Impact on Indian business
In this case, people who stand to lose big are Anil and his investors and employees. But in the larger scheme of things, RCom is another company leaving a negative impression of how business is conducted in India. As more scams, such as Cobraposts sting on Dewan Housing Finance Corporation Ltd and controversy surrounding the Adani Group, are unmasked, the more investors, domestic as well as foreign, and countries perceive corruption and instability in India.
The functioning of the Ambani family, because of its reach in Indian industries, also dictates the perception of business here. Lately, the Ambanis have garnered a lot of international press with Isha Ambanis wedding, the construction of the lavish Antilia residency, and with Mukesh becoming the richest man in Asia. Hence, the RCom fiasco casts a shadow not only over the Ambani brand, but also over the ease and stability of business in India.
Rhea Arora is a Staff Writer at Qrius