Reliance Communications (RCom) shares came crashing like nine pins on Monday after the Anil Ambani-led company filed for bankruptcy in the face of inability to resolve mounting debt. And it's clear that Anil Ambani's pain is brother Mukesh Ambani's gain, in many ways.
The fierce tariff war launched by Mukesh Ambani's Reliance Jio was one of the reasons behind the unravelling of Reliance Communications, an earlier entrant to the telecom sector than Reliance Jio.
RCom, which was racing against time to settle debt amounting to more than Rs 42,000 crore, was banking on a potential spectrum sale to Jio. The company finally took the bankruptcy route after legal wrangles prevented a timely conclusion of the sale process.
Now that RCom has initiated bankruptcy proceedings, the plan to sell spectrum and towers to Mukeh Ambani-led Reliance Jio would stand cancelled.
However, when the debt resolution process restarts under the interim resolution professionals, Reliance Jio would be able to bid for RCom assets again, at a cheaper price. Thus it turns out that RCom's spectacular undoing is a straightway gain for Reliance Jio.
For debt-laden RCom, which decided to wind up its wireless business in December 2017, the sale of spectrum to Mukesh Ambani-controlled Reliance Jio was crucial for survival. The Supreme Court had approved the sale on 30 November subject to conditions. However, protracted legal wrangles delayed the deal, effectively leading the failed firm to choke up finally.
Group companies take hit
The spectrum sale to Jio, which would have brought nearly Rs 18,000-crore to the debt laden company, floundered after RCom's creditors demanded payment ahead of the sale.
Now, Mukesh Ambani can bid for RCom assets as the supreme court relaxed rules in January, allowing family members to bid for assets of a company going through insolvency.
And, with the fortunes of RCom dwindling, the assets would come at a cheaper price. "The value of RCom if it goes into liquidation will be destroyed and with this sword hanging, the bidders may negotiate harder in the insolvency process with creditors and bring down prices," Apurva Jayant, a partner at law firm L&L Partners, told Bloomberg.
Shares of Reliance Communications Ltd, which was once India's No. 2 wireless carrier, plumbed the depths on Monday, crashing at one point more than 50 percent on the National Stock Exchange.
The crisis-hit firm said it was moving for bankruptcy protection after its attempts to pare Rs 42,000 crore debt failed despite attempts over the last 18 months to sell assets and negotiate with the lenders.
While RCom investors saw the share price tanking, other Reliance companies also faced heavy selling pressure. Reliance Capital dropped 20 percent, Reliance Power plunged 35 percent and Reliance Naval and Engineering Ltd. fell 15 percent on Monday.