Reliance Communications bidders add tough riders

MUMBAI: Bidders for the bankrupt Reliance Communications (RCom) have put stringent conditions with their bids, making it more difficult for lenders to strike a resolution plan in what already is a complex process due to sectoral challenges. RCom and its two subsidiaries owe Rs 86,187.58 crore to financial creditors.
The four bidders for the company are seeking immunity from the company's inter corporate guarantees and also exemptions on the company’s liabilities to the government for fees and other payments such as spectrum. Lenders are hence expecting a long-drawn-out recovery process despite getting four bids as some of these conditions can only be given by the government.

Reliance Jio Infocomm, Bharti Airtel, UV Asset Reconstruction Co and private-equity firm Varde Partners have bid either partly or for all the assets of bankrupt RCom and its two units, Reliance Telecom Infrastructure (RTIL), which had licences to provide telecom services in eight regions and its tower company Reliance Infratel.

“Each of these three companies have some links or guarantees with each other. None of the bidders want to take the guarantee for the other companies. Then there are issues with regards to government payments like past spectrum dues and adjusted gross revenue (AGR) related payments. They are also asking some concessions on future dues which we don’t know about now. This has made us wary about the viability of these bids,” said a person familiar with the plan.

These conditions have been put even as banks are grappling with different offers from the bidders. Reliance Jio has bid Rs 3,600 crore but only for the tower assets while Bharti Airtel has offered about Rs 9,500 crore but very little has been kept for financial creditors upfront with the majority of the money set aside for future liabilities arising from the government payments.

UV ARC’s bid is at Rs 12,760 crore, staggered over 12 years with only Rs 5 crore kept for creditors upfront, according to a person familiar with the bids. The Varde Partners bid is also very complicated because they are offering a complex structure in which new SPVs will be created for each of the business and as and when the recovery happens they will pay back banks.

“This was a complex case any way and the bids that we have got has made matters worse. It will take some time to evaluate these plans and to come up with something workable. The department of telecom will also have to play a role as banks cannot give the waivers they are asking for,” said the second person familiar with the plan. Bankers said the experience in RCom resolution makes lending to telecom companies more and more difficult in the future because there is no guarantee of recovery.

“The net present value calculation does not work in these companies because there is no assets or guarantees. Banks will now have to think twice before lending to these companies or we have to take 100% loan loss provisions. This case is a test for lending to telecom companies and will lead to banks learning many lessons,” said the second person cited above.