India’s Department of Telecommunication has withheld its approval of a spectrum trading agreement between Reliance Communications (RCom) and Reliance Jio.
The decision is a major setback to both operators as it effectively stymies the deal – first announced in early 2018 - that would have seen RCom sell assets including 800MHz spectrum to Jio as a means of paying down some of its debt. RCom has accrued spectrum-related charges of as much as INR29.5 billion ($420.5 million), although it disputes the fee.
In an attempt to recover this sum, the DoT imposed repayment as a condition for approving RCom’s asset sale. Concerned about assuming liability for RCom’s debts if the asset sale proceeded as planned, Jio sought assurances from the DoT that it would not be held responsible for them. Days after this request was made, the DoT rejected the deal.
Speaking to The Economic Times, a DoT representative said that under spectrum trading rules, the purchaser must cover any outstanding debts that cannot be recovered from the seller. The spokesperson said that “we cannot accept” the agreement “since Jio imposed conditions”, and therefore the DoT had no choice but to deny approval, adding “the ball is in their [Jio’s] court…till then, this deal is off the table.”
The DoT’s refusal to approve the asset sale could be disastrous for RCom as the operator has yet to pay INR5.5 billion to Ericsson to settle a court case related to unpaid service fees. RCom missed the original payment deadline of 30th September, but was granted an extension after India’s Supreme Court ruled that this was caused by government actions that held up the sale of RCom’s assets to Jio. However, now that RCom has missed the new deadline of 15th December, it could be held in contempt of court and face renewed insolvency proceedings.