Ericsson teaches Anil Ambani – and India – a lesson

Anil Ambani’s not going to jail after all, and Ericsson AB got its money. The Swedish company’s lawyers should take a bow.
While the future of the Indian tycoon’s shrinking empire remains shrouded in uncertainty, at least questions over his near-term living arrangements got answered. Ambani thanked his “respected” elder brother, Mukesh, and sister-in-law, Nita, after avoiding a three-month prison term. India’s richest man showed up just in time to help his younger sibling who has, in a little over a decade, lost 99 percent of his $31 billion net worth.
The local unit of Ericsson had accepted $80 million settlement to keep its petition for Reliance Communications Ltd.’s $7 billion bankruptcy in abeyance. The telecom equipment vendor subsequently won a contempt-of-court order to put Chairman Anil Ambani in jail if the long-delayed payment – which he personally guaranteed – wasn’t received by March 19.
When a history of the early years of India’s 2016 bankruptcy code is written, Ericsson’s lawyers will deserve a glowing mention. For an unsecured creditor to walk away with a 48 percent recovery of its claim – while secured lenders wait patiently for RCom to sell its spectrum, redevelop its land assets and pay them something – shows that the Swedish firm played its cards well.
It also shows secured creditors, led by State Bank of India, in a rather poor light. They have been deluding themselves since June 2017, when they agreed to an out-of-court restructuring, including a plan to convert part of their debt into equity at almost 25 rupees a share. Luckily that plan went nowhere.
A revised restructuring later that year also saw little progress. RCom, having decided to exit its money-losing 2G and 3G mobile operations, planned to offload spectrum, fiber and media convergence nodes to Mukesh Ambani’s hyper-aggressive 4G service. RCom and Jio officially called off the deal last week, just as the younger Ambani got bailed out by his brother. With RCom now seeking an in-court bankruptcy resolution, banks are back to square one.
Even now, the lenders have no real plan. Jio’s entry has crashed prices of telecom services, and led to shutdowns and bankruptcies, including of RCom. Mukesh Ambani may still have appetite for assets controlled by his younger brother, but a bidding war is doubtful.
Recent comments by Bharti Airtel Ltd. Chairman Sunil Mittal, should worry banks deeply. When reporters asked Mittal if he’d bid for RCom’s spectrum out of bankruptcy, he questioned the very premise of airwaves being sold by tribunal-appointed resolution professionals.
As secured lenders cringe at that thought, Ericsson’s lawyers can bask in their success. First, they snagged a sweet deal by exploiting RCom’s initial reluctance to enter in-court bankruptcy. Then, they succeeded in getting a credible jail risk for Anil Ambani thrown into the mix to ensure the deal was honoured. Finally, they got their client $80 million. Really nicely done.
—Bloomberg

David Fickling is a Bloomberg Opinion columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.