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Indian telecoms group Reliance Communications has been hit with an insolvency petition from the Chinese bank that is its largest creditor, another blow to a company that has been badly hurt by price competition.

The company, which is controlled by tycoon Anil Ambani, has been affected by the arrival in its market last year of Reliance Jio, which is controlled by Mr Ambani’s brother Mukesh.

This has left it unable to service Rs457bn ($7bn) of debt owed to domestic and foreign lenders, with China Development Bank accounting for the largest chunk of this.

On Tuesday, shares in RCom — which had already lost 80 per cent of their value over the past two years — fell 4 per cent following local media reports that CDB had filed a petition with India’s National Company Law Tribunal, under the country’s recently introduced corporate insolvency law. The filing of the petition was confirmed to the Financial Times by a person with direct knowledge of the matter.

The insolvency law, which came into force last year, was designed to end the pattern of failing companies surviving for years while their founders remained in charge and creditors took steep losses on loans. Under the law, if a case of corporate default is not resolved to the satisfaction of creditors within at most 18 months, a company can be forced into liquidation.

RCom said it had not received any notification of the petition’s filing, and expressed surprise at CDB’s “untimely and premature action”.

CDB’s move came less than a month after RCom announced a plan to resolve its debts, which it said had won the provisional support of creditors. Under that plan, RCom said Rs70bn of its debt would be converted into 51 per cent of its equity, with a further Rs270bn to be raised through sales of real estate, spectrum and telecom infrastructure.

RCom said that CDB had been “actively participating” in talks on this plan, adding that it remained “engaged with all lenders including the China Development Bank and is confident and committed to a full resolution with the support of all the lenders”.

The new proposal followed the breakdown of RCom’s previous plan, which involved a merger of its mobile business with rival Aircel. It now plans to stop offering services using its own mobile infrastructure, leaving it with a much smaller consumer business running on Jio’s network under a co-operation agreement.

Credit losses on CDB’s loans to RCom would show the risks that accompany Beijing’s ambitious “Belt and Road” initiative to fund infrastructure links across the developing world.

The bank had $110bn in loans outstanding to countries included in that initiative at the end of last year. Its $329bn in total foreign-currency loans accounted for 30 per cent of all such assets held by Chinese banks.

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