A customer uses an automated teller machine (ATM) at a State Bank of India Ltd. (SBI) branch. | Photographer: Karen Dias | Bloomberg
State Bank of India | Photographer: Karen Dias | Bloomberg File Photo
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New Delhi: Indian lenders rushed to be included in a case involving recovery of $19 billion of past dues from telecom companies after a Supreme Court judge questioned banks’ right to sell insolvent carriers’ airwaves.

Lenders led by State Bank of India in a plea said any move to ban bankrupt companies such as Aircel Ltd. and Reliance Communications Ltd. from selling airwaves, leased from the government, will sink their insolvency resolution process and can cause serious prejudice to lenders, according to people aware of the filing. State Bank didn’t respond to an email seeking comment.

The ramifications for lenders is huge and extends beyond just the telecommunications industry. A ruling to bar spectrum sale can limit the ability of Indian creditors, already battling the world’s largest bad loan pile, to recover loans under the bankruptcy process.
In case the court stops public assets, such as airwaves and road concessions, from being sold it may derail resolution of number of stressed infrastructure projects too, according to Jay Parikh, a partner at L&L Partners, an India based law firm.

“The banks would certainly be jittery going forward to lend to any of the operators,” said Parikh, whose firm advised UV Asset Reconstruction Co., the buyer of insolvent telecom companies including Aircel and Reliance Communications. “So everybody has got their eyes and ears glued into what the Supreme Court is going to decide.”

A three-judge panel headed by Justice Arun Mishra hearing the case in which the government is trying to recover $19 billion of dues from service providers, berated the government on Monday for a delay in filing a challenge to the sale of airwaves under Aircel Ltd.’s bankruptcy process. The court is also examining whether the bankruptcies were genuine or to avoid paying back fees.

Three bankrupt companies Reliance Communications Ltd., Aircel, and Videocon Industries Ltd.’s owe around $4.1 billion, $1.6 billion, and 184 million rupees respectively.

At one point during the hearing on Friday, Justice Mishra sought to know why Reliance Jio Infocomm Ltd., which is using Reliance Communications airwaves, shouldn’t be asked to pay the dues for the company in a bankruptcy court.

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The court has directed the companies to place their airwaves sharing agreement on record. It also directed the government to give details of companies which have used the airwaves of bankrupt companies. The hearings in the matter will resume on Monday.

A bankruptcy court has already approved the sale of Aircel’s assets, including rights to use airwaves to UV Assets. A similar plan for Reliance Communication is awaiting approval. The government claimed spectrum is a national asset and cannot be sold under bankruptcy.-Bloomberg

 

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