No one can estimate Future with even 99 % accuracy! This is what has proved Rcom!
Whenever, it had made a new lifetime low, more and more retail investors entered in this Share. Many Retail Investors choosed to continue holding shares of Rcom despite of many negative points and facts about company. This decision was purely backed by the name and brand which it belongs to i.e Reliance.
During period of 2006–07, rcom was among the top Blue Chip companies. Every Investor, analyst, broker and Institution was confident about the future of company. And now after almost one decade, see where the company stand now. It has now filed for the Insolvency process!
It purely seems that Mukesh Ambani now doesn’t want to Buy assets of Rcom at the price agreed before. Without Rcom, it is little difficult situation for the Jio to continue operating all its circles smoothly. So, it is still 99 percent true that Rcom assets will ultimately go in the hands of Mukesh Ambani.
It is true that Reliance Jio is now less interested in the assets of Rcom, which is clearly visible through its letter given to Dot earlier and no response from Jio Board on Rcom going into NCLT. But what I believe after all this development in recent days is that Mukesh Ambani now wants to buy Assets of rcom at a much lower price than what he had agreed before. And it is possible only through NCLT.
In the latest time, NCLT has started working as a provider for good/ fair businesses at a very low cost! Plus point of making any purchase of business from NCLT is that you(businessman) generally have the options to improve working efficiency of NCLT companies with low investment in acquired business and start generating good profits in a very short span of time.
Going into Insolvency will definitely affect some goodwill of both ADAG Group and Reliance Industries. But when the benefits from such step could lead to extreme profits, I don’t think it is very hard for the strong businessman Mukesh Ambani to make such things possible.
Before, with using towers, Spectrum, Real estate, GCX, and other valuable assets, Rcom had to pay off Rs 40–45k crore to its different kind of creditors, lenders etc. But after going into NCLT, the buyer will get all the assets of Rcom company at a very low price or cost as compare to actual pending liabilities in the books of company.
In reality, I am assuming that this buyer will be not other than Jio, who will now get all the assets of Rcom at a cost lower than previous.
As per RBI rules, around 50 percent provision have to be provided by Banks on those loans which goes into Insolvency. Taking this assumption of required provision into account, it is possible that Jio will now get the Whole Rcom company in around Rs 20,000–25,000 crore as compare to pending liabilities of Rs 40,000–45,000 crore.
If the deal of Rcom with Jio or any other party could be executed in 2017 or 2018, then Anil Ambani could also get some positive thing from Rcom. But now after suffering almost 2–3 years from Debt Resolution Plan, value of rcom or Net assets is expected to arise almost Zero if company use its all assets to pay off its all debt in present time. Therefore, Rcom is no more a beneficial thing for Anil Ambani.
Thus, if the Jio comes as the highest bidder during NCLT Auction or even not, Anil Ambani will get a relief and will no more have to focus on Rcom for more debt resolution plans. He then could focus on its Financial, Power, Defence and Infrastructure sector more. Also, the name and company i.e Rcom will remain in the hands of Ambani Family ( if Jio Acquires it). Additionally, the Ambani brothers will save a great amount of money by getting a big discount on pending Liabilities after NCLT proceedings.
Overall, going into NCLT will definitely hurt goodwill of both Reliance ADAG and Reliance Industries to a great extent, in short term. But this will also help them(Ambani brothers) to save almost 20,000–25,000 crore!
Although, Everyone knows that Mukesh Ambani only do those things which generates maximum return and profit. We don’t know the exact future plan of two brothers. But every investor should assume that these two Ambani brothers have already joined hands and would work in future in accordance to that plan which would generate the best returns for both the brothers. And therefore, I believe that there next course of action would be as same as I have discussed above. However, in case two brothers have again separated their paths into different ones, then the future could be very different from what I have discussed above.
But whatever the matter is……the reality is that Investors were continuously loosing money in this counter from last few years. And after board announced about its plan of filling for Insolvency on Friday, the speed of eating valuable money of retail investors has been increased by 10x. Within two days after announcement, the stock has lost more than 50 percent share price and around Rs 2000 crore market capital.
Such price in share of Rcom is common to see and doesn’t include any special thing. It is because it has become the new rule of share market that those companies having good image and business in the market but fall into bankruptcy will have the share price around or below Rs 5. And those companies whose goodwill and business is around just Fair status and and goes into NCLT, their share prices are bound to trade around or below Rs 2. Because rcom falls into first category of good business company, it will either trade around Rs 5 or will fall upto Rs 3-4 in short term.
However, now discussing anything will not help the investors to get back their money back. So, from now onwards, no one should assume that rcom is still left as a investment idea. Because after going into NCLT, no company should be taken as any pure Investment idea or stock. Before going into NCLT, rcom had around 1 percent space for any investment which was still very risky but now nothing is left. Any fresh buying or pure exit/partial exit in rcom should be your own decision based on purely your capacity of handling losses.
Few Investors who believe that NCLT Companies may give great returns in long term can have alternative decisions. But one should not forget that not all companies who falls into Bankruptcy under NCLT gets a new single buyer for the whole company. Almost 99 percent, committee of creditors of NCLT companies tries to allot such businesses as a whole to a single buyer. But in case, COC fails to identify any potential buyer for the business, then they opt or have to go through liquidation process which generally doesn’t gives any amount back to shareholders!
Have any question related to this post! Feel free to ask through comment box given below.