The circling sharks are starting to nibble at Reliance Communications

The problems at Reliance Communications are starting to become very well known, and it would appear one of its creditors has finally lost faith in the struggling telco.

According to the Financial Times, the Indian telco has been hit with an insolvency petition from its largest creditor China Development Bank. It is another heavy blow after a couple of months which has seen it lose market share, revenues plummeting under intense pricing pressure and share price dropping drastically. CEO Anil Ambani is certainly the brother feeling the sharp end of the stick.

For those who are not knee-deep in financial terms, an insolvency petition is essentially a creditor asking a court for a winding-up order. Should the petition be successful, the court will place the company into what is called compulsory liquidation. The liquidator realises the assets of the company, and distributes them between creditors according to their priorities, after the deduction of costs.

In short, the China Development Bank has lost any confidence it had in Reliance Communications to compete in the market, and is therefore attempting to force the telco to pack up and pay its debts. China Development Bank wants to recover as much of its investment as possible before the spreadsheets become too much of a disaster zone.

Reliance Communications has stated it has not received notification of the petition, but has said it is actively talking with creditors, including China Development Bank, to plot a path back to the right side of wrong. The company currently owes around $7 billion to creditors, and considering the direction the telco is currently heading, you can see why China Development Bank is getting a bit nervous.

According to Ovum’s WCIS, Reliance Communications is one of the only major players who is not growing its mobile subscriber base, market share has declined from 10% to 6.4% and the proportion of postpaid customers has declined to 3.95% from 6.63% (the vast majority are heading the opposite direction). Revenues also declined to $407 million in the latest quarter, down from $768 million in the same period for 2016, while expenses were $839 million.

Reliance Communications is rumoured to be in discussions to offloading some of its assets to Bharti Airtel, but apparently that isn’t enough for China Development Bank. The sharks have got the smell of blood and are going to bite off as much as possible before there is nothing left; China Development Bank just wants to make sure there is enough left when it arrives to the feast.