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Aircel files for bankruptcy, says faced trouble after entry of a new player

By / March 1, 2018 / / 0 Comments

Aircel has become the latest victim in the highly-competitive telecom market in the country with the operator along with its units Aircel Cellular and Dishnet Wireless filing for bankruptcy in the National Companies Law Tribunal (NCLT), Mumbai after its lenders and shareholders failed to reach a consensus with respect to the restructuring of its debt.

Aircel, majority owned by Malaysia-based Maxis Communications, said it has been facing troubled times in a highly financially stressed industry, owing to intense competition following the disruptive entry of a new player, legal and regulatory challenges, high level of unsustainable debt and increased losses.

With the entry of Reliance Jio in September 2016, most of the telecom operators have seen their profitability plunge to new lows. The market has now consolidated to 4 private players along with state-run BSNL and MTNL and soon there will be 3 as Vodafone and Idea Cellular are merging together. Intense competition and low tariffs have forced the Indian telecom sector to consolidate in a bid to survive.

The sector, which a few years ago, had around a dozen mobile operators, has been now reduced to a few big players as the smaller telcos have either merged or shut shop. The first major setback for the sector came in 2012 when Supreme Court cancelled 122 telecom licences. Another disruption came in September 2016 with the launch of services by Reliance Jio. The dirt cheap tariffs of Jio forced other telcos to match pricing leading to drop in profitability.

Getting a sense about the financial condition of telecom players after Jio`s entry, Airtel got Telenor and Tata Teleservices virtually free of cost.

Reliance Communications (RCom) was forced to shut its wireless business whereas its assets have been bought by Jio.

Aircel said it has filed an application under Section 10 of the Insolvency and Bankruptcy Code, 2016 for undertaking Corporate Insolvency Resolution Process (CIRP). Aircel has a debt to the tune of Rs 190 billion which include deferred spectrum payments. The company said in 2016, it embarked upon a merger of its wireless business with RCom but on account of various issues and hurdles faced, the merger did not succeed and ultimately lapsed in September 2017.

As per sources, the fate of Aircel was sealed after Ananda Krishnan-led Maxis Communications decided not to infuse more funds in the company. The situation was further compounded after Supreme Court in January this year barred Aircel from selling or leasing its assets in a broader corruption case.

“Post detailed discussions with the financial lenders and shareholders, the company could not reach consensus with respect to the restructuring of its debt and funding. Despite these discussions and the invoking of a Strategic Debt Restructuring scheme in January 2018 pursuant to the then guideline of the Reserve Bank of India, no agreement could be reached,” Aircel said in a statement.

It further added under the current circumstances, especially after the February 12 RBI guidelines, the company believes resolution process under the code is an appropriate recourse.

As per rules, Aircel will be placed under a court-appointed insolvency resolution professional, who will get 180 days that can be extended by another 90 days to work out a repayment plan. If no plan is agreed during the 270 day period, the company will be declared bankrupt and will be liquidated.

Aircel emphasized that CIRP is not a proceeding for liquidation, rather is a process to find a best possible resolution for the current situation and that would be in the best interest of everyone (vendors, distributors, employees, etc.) to protect and preserve the value of the company and manage the operations.

Aircel further said it requests continued services from the suppliers and partners for the ongoing business of the company.

The Journey So Far

Aircel commenced operations in 1999

In 2005, Maxis Communications bought a majority stake in Aircel

The low-cost crowded Indian telecom market made it difficult
for telcos to make money

The launch of Jio in September 2016 further brought down tariffs

Aircel’s merger with RCom called off in September 2017

The firm shut down operations in six circles in January

Idea and Vodafone have snapped ties with Aircel for non-payment of dues

Aircel is currently the country’s sixth largest telco with 85 mn customers

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