The Commercial Division of the High Court of England and Wales in London on Friday (May 22) ordered Anil Ambani, the former chairman of the bankrupted Reliance Communications, to pay approximately US$717 million to three Chinese banks within 21 days, pursuant to a Facility Agreement and a binding personal guarantee. The court also ruled the court costs of 750,000 pounds in favor of the claimant (Chinese banks), owed by the defendant.
The three Chinese banks, including Industrial and Commercial Bank of China, the Export-Import Bank of China, and the China Development Bank, provided a total of approximately US$925 million in refinancing loans to Reliance Communications in 2012. At that, Indian tycoon Anil Ambani was the chairman and the owner of Reliance Communications. According to a lawsuit filed by three banks headed by the Industrial and Commercial Bank of China in the London court, the Chinese bank accused Anil Ambani of providing personal guarantee for the loan.
Reliance Communications entered bankruptcy and liquidation procedures on November 15, 2018, and admited the supervision by the resolution professionals of Deloitte India. Anil Ambani quit as chairman of the board of Reliance Communications in November 2019.
As of August 2019, the debt of Reliance Communications and its subsidiaries amounted to approximately Rs49000 crore rupees. There were 38 creditors including the State Bank of India, Bank of Baroda, Syndicate Bank and Punjab National Bank, Industrial and Commercial Bank of China, the Export-Import Bank of China, and the China Development Bank, etc.
Since Reliance Communications defaulted on its loan, and Reliance Communications was already in the process of bankruptcy, the three Chinese banks, led by the Industrial and Commercial Bank of China, filed a lawsuit in Commercial Division of the High Court of England and Wales in London in early November 2019. Ambani was sued to fulfill his personal guarantee obligations to pay back US$ 680 million in default loans owed by Reliance Communications.
Anil Ambani defended through lawyers that he never gave a guarantee tied to his personal assets for the US$ 925 million loans provided by Chinese banks to Reliance Communications. As Reliance Communications has entered the bankruptcy process, and Chinese banks can only get back the resolution clearance based on the results of the bankruptcy process.
The London Court held a hearing on February 7, 2020, a judge was given to Anil Ambani, who denies that he personally guaranteed the loans, until March 20 to pay $100m into court ahead of a trial. If a payment is not made, Mr Ambani’s defence can be struck out.
According to India media, 38 creditors of Reliance Communications unanimously approved the insolvency resolution plan to settle unpaid debt on March 4,2020. With the resolution plan, all the creditors would fetch Rs 23,000 crore , accounting approximately 70% of their total dues of Rs 33,000 crore. The creditors submitted claims of around Rs 49,000 crore in August of which Rs 33,000 crore estimated to be secured debt. The three Chinese banks would be able to get back Rs 5,500 crore, clearing about 55 per cent of their principal dues. The other 35 creditors got a total of resolution clearance of Rs 17,500 crore, accounting for 76% of total outstanding dues of Rs 23,000 crore.
The court trial held on Friday was held in line with procedures in place for the COVID-19 pandemic. The judge ruled at the Commercial Division of the High Court of England and Wales in London that a personal guarantee disputed by Ambani is binding on him. The court refused to accept Ambani’s argument that his net worth is zero, and hence he cannot pay to the Chinese banks.
According to the court order, the defendant Anil Ambani should pay a sum of US$716,917,681.51 to the claimant (three Chinese banks) pursuant to the guarantee, including the principal amount outstanding under the Facility Agreement of US$ 549,804,650.16; interest outstanding as of May 22 of US$51,923,451.49; and default interest due of US$115,189,579.86. The court also ruled that the ccourt costs order in favour of the banks, adding a further 750,000 pounds to the overall amount owed by Anil Ambani.
“The final amount owed by the Defendant (Ambani) to the Claimant (banks) under the Guarantee shall be assessed subject to the outcome of the RCom Insolvency Action,” the court order states, leaving the option open to the banks to revisit the final amount in future.
A spokesperson for Anil Ambani said the matter pertains to an alleged personal guarantee for a corporate loan availed by Reliance Communications in 2012 for global refinancing. The spokesperson said that it should be emphasized that this is not a personal loan of Anil Ambani. The ICBC ’s claim is based on an alleged personal guarantee that Anil Ambani has never signed. And Anil Ambani has consistently denied having authorized anyone to execute any guarantee on his behalf.
The spokeperson also said:" as far as the judgment of the UK court is concerned, the question of any enforcement in India does not arise in the near future, and Ambani is seeking legal advice on the future course of action", according to The WIRE.
Although Reliance Communications, once controlled by Anil Ambani, has gone bankruptcy and insolvency, the Chinese banks sued Anil Ambani and claimed him with assets enough to pay the outstanding amount under his person gaurantee. With the London court order, the three Chinese banks may be paid back to recover their losses incurred in the bankruptcy and liquidation of Reliance Communications.
Compared with Anil Ambani’s bankruptcy and decline, his older brother Mukesh Ambani, the owner of Reliance Industries and Reliance Jio, has been much shining. Since the official launch of Reliance Jio 4G mobile commercial services in September 2016, Reliance Jio topped the largest telecommunications operator in India in three years. And since April 2020, amid the global pandemic of COVID-19, Reliance Jio has received US$10.3 billion of equity investment from the US Internet giant Facebook and four US equity investment firms within a month. Reliance Jio's equity value soared to US$65 billion US dollars, ranking it as the ninth largest telecommunications operator in the world by market value, and valuation indicators such as EV/EBITDA ratio surpassed those of Internet giants such as Amazon and Alibaba. Mukesh Ambani's personal assets also surpassed China's Jack Ma to regained the richest man in Asia.
For details on how Reliance Jio has become India ’s largest telecommunications operator and its valuation premium, please read the Study Report on Reliance Jio and its Valuation Premium.