NCLT stays Reliance Infratel asset sale to Jio until further orders

Anil Ambani | Photo: Reuters
The Mumbai bench of the National Company Law Tribunal (NCLT), on Monday evening, stayed the sale of Reliance Infratel Ltd’s (R-Infra) assets until further orders. The NCLT also dismissed petitions filed by Reliance Infratel which sought to put a stop to the tribunal’s hearings on the proposed sale of its assets to a third-party, in lieu of debt resolution. 

Reliance Infratel is a subsidiary of Anil Ambani led Reliance Communications (RCom). The company plans to sell its assets, through a binding agreement, to Reliance Jio Infocomm Ltd (RJio) as per a debt resolution plan approved by lenders in December 2017. Reliance Jio is controlled by Mukesh Ambani, Anil Ambani’s older brother.

The NCLT Mumbai bench heard the petition filed by the overseas investors of Reliance Infratel, wherein the lead petitioner in the case HSBC Daisy Investments (Mauritius) Ltd, who along with the other shareholders, has alleged oppression of minority shareholders and mismanagement under Section s397 and 398 of the Companies Act, 1956.

Sections 397 and 398 essentially state that a complainant can file an application if they feel “that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members.”

Back in July 2007, HSBC Daisy Investments, along with other investors, had invested around Rs 11 billion in Reliance Infratel in return for a five per cent stake, which is now down to 4.26 per cent. In light of the proposed sale of its assets, first to Brookfield Asset Management Company and then to Reliance Jio, the petitions were filed by HSBC Daisy (and others). 

The NCLT division bench of B S V Prakash Kumar and Ravikumar Duraisamy, accepted the amendment petition put forth by the aggrieved investors and instructed the petitioners to implement the changes they wanted in the original petition that they (HSBC Daisy and others) had filed. 

Further, Reliance Infratel has been given three weeks time to file a response, upon which HSBC Daisy and others can file a rejoinder. 

The tribunal decided to hear the contempt petition filed by HSBC Daisy (and others) against Reliance Infratel, which alleges that the telecom player did not follow the court’s earlier instruction to share details of the proposed acquisition deal with the shareholders (led by HSBC Daisy). 

The contempt petition scheduled to be heard on 13 March 2018, will now be heard on 06 April 2018. 

Reliance Infratel has a reported debt worth Rs 34 billion, and Iqbal Chagla, counsel for the petitioners, argued at the NCLT last week, that Reliance Infratel’s tower business was valued at Rs 110 billion, when RCom was in talks with Brookfield as a potential buyer. 

Chagla told the learned judges that Reliance Infratel would be defunct once all the assets were sold, therefore eroding the value and investments held by those he represented.  

RCom’s debt resolution plan, which is yet to get Department of Telecommunications (DoT) approved, was announced in December of last year and is expected to reduce the company’s debt by Rs 390 billion.

The acquisition deal, announced on December 28, was expected to be completed by this month-end, but that seems unlikely with today’s order. RCom’s debt exposure stands at Rs 450 billion as of October 2017.

The asset sale to Reliance Jio does not include RCom’s real estate assets, and the 134 MHz (Mega-Hertz) spectrum assets still owned by the company, which may have other potential buyers. 

Reliance Jio will get RCom’s  22.4 MHz (4G) spectrum in the 800/900/1,800/2,100 MHz bands, across over 43,000 towers, as well as a 178,000 RKM (route km) fibre-optic cable network with a pan-India footprint and 248 media convergence nodes covering five million square feet, used for hosting the telecom infrastructure. 

This is a set back for Anil Ambani’s RCom and Reliance Infratel, even after the Competition Commission of India tweeted its approval to the deal on 09 March.

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