A number of now non-operating Indian telecom companies are no doubt fearing the worst after a recent ruling made it more difficult to sell their spectrum to pay off creditors.
Indian press reports indicate that, while a National Company Law Appellate Tribunal (NCLAT) ruling permits the sale of spectrum as part of the insolvency process, government dues need to be paid first.
Apparently triggering a corporate insolvency resolution procedure under the Insolvency and Bankruptcy Code (IBC) would make no difference to this ruling, a relief to the Department of Telecommunications (DOT), which was appealing against an NCLT order clearing an Aircel resolution plan. The plan included transfer of spectrum to a group called UV Asset Reconstruction Co Ltd (UVARCL).
The idea was that UVARCL would generate funds by monetising Aircel’s assets, notably through the sale of Aircel’s 1800MHz and 2100MHz spectrum. However, this could mean a moratorium on licence fees and deferred spectrum payments. If this happened DoT might only get a small fraction of the amount it is owed.
And it is owed a lot. Adjusted gross revenue (AGR)-related dues from Aircel are about $1.65 billion (although this will more than double if DoT’s claim for a number of additional dues is upheld), RCom owes close to $3.45 billion and Videocon Telecommunications owes a comparatively modest $183.3 million.
DoT argued that spectrum is a national asset that cannot be transferred to a third party unless statutory dues are paid – and after DoT gives its approval based on airwave trading rules.
This view has been upheld. Given that spectrum was considered their most valuable asset, it’s hard to know what Aircel, RCom and Videocon will do next. Spectrum was essentially acting as security against which banks had given loans but NCLAT may have undermined this approach. Could this make fundraising more difficult for operators in the future?
Certainly a large number of lenders, including some major banks, will lose money if the spectrum can’t be sold. It’s still not clear how the DoT will get its money back either, despite the ruling going in its favour.