Few companies in the Indian context have imploded as gradually yet as inexorably as Reliance Communication. The company has been blaming the NBFCs like Edelweiss Finance and L&T Finance for disposing shares in the market with malicious intent. However, the financers had little choice with the stock price of RCOM falling vertically. Pledged shares, as we have seen in the past, can be a double whammy for companies and RCOM and the entire ADAG group was no exception.
It all began with CDMA
When Reliance Communications was first launched back in 2003, it was way ahead of its time. CDMA as a technology was much smarter than GSM. With an unbeatable offering of price, service and network, Reliance Communication made an offer few could refuse. Things did change quite rapidly for the company post 2009. With the introduction of smart phones and mobile date explosion, the benchmark for mobiles shifted towards 4G and 5G. But, CDMA technology was designed only to run on 2G and 3G. To that extent, the CDMA technology was just unprepared for the smart phone explosion. Where RCOM erred is in holding on to their CDMA technology for too long. By the time they decided to venture into GSM, the space was already crowded. RCOM had already run up a mountain of debt and was left holding a lot of worthless assets. From there it was downhill!
Jio rubs it in
If smart phones and 4G networks did RCOM in, the real problem was actually precipitated by the entry of Reliance Jio in late 2016. Jio launched plans at rates that were not heard of before. With an endless flow of money from refining and petchem, Reliance could afford to play the waiting game longer than the others. The reaction was almost immediate. Vodafone rushed to merge with Idea and Bharti picked up the Tata Tele business virtually for nothing. RCOM did manage to sell his assets and towers, lock, stock and barrel to Jio. However, it was pressure from creditors that finally pushed RCOM to opt for bankruptcy filing. What happened to RCOM from here on?
Now for negotiated sale
The choices are quite limited for the ADAG group. Once they file for bankruptcy, RCOM still has 270 days time to work out a mutually agreeable settlement with the creditors. It is entirely possible that a potential buyer may squeeze the banks for a much higher hair cut to the tune of 70-75% and walk away with the RCOM assets at a real throwaway price. For Anil Ambani, the damage to the entire growth is already huge. The group market cap since the split has fallen from $48 billion to $4 billion! During the same period, the MDAG market cap has doubled to $100 billion. Over to the NCLT! ©
