Updated: June 15, 2010 02:58 IST

RCom to demerge Reliance Infratel

Special Correspondent
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Anil Ambani, Chairman, Reliance Communications.
Anil Ambani, Chairman, Reliance Communications.

Reliance Communications (RCom) proposes to restructure ownersip of its subsidiary Reliance Infratel (RInfratel) through a demerger or other options. The boards of directors of RCom and RInfratel on Monday approved in-principle a proposal to restructure ownership of RInfratel to facilitate creation of the world's largest independent telecom infrastructure company, not owned or controlled by any telecom operator.

According to a statement from RCom, this proposal will be implemented through a demerger and/or other suitable value-creating options via-a-vis RInfratel's assets, subject to necessary approvals, with the consideration to be received in a combination of cash and stock. Both companies are at an advanced stage of discussions with several domestic and international financial players to finalise the proposal and a transaction is expected to be announced soon.

In a statement, Anil Ambani, Chairman, Reliance Communications, said, “Our transformational initiative of creating the world's largest independent telecom infrastructure company will facilitate efforts of new telecom players to achieve the most extensive and fastest nationwide rollout in the most cost-effective manner. I am personally looking forward to an era of healthy co-operation and collaboration with existing and new players, especially recent winners of 3G and BWA spectrum. I am delighted that this endeavour will greatly benefit Reliance Communications through substantial debt reduction and enhanced financial flexibility.”

The boards of the two companies noted recent developments in the Indian telecom sector, including inter alia the likely substantial future demand for telecom infrastructure across the country from 14 players in 2G, and winners in the recent auction for 3G (9 players) and BWA (Broadband Wireless Access — 8 players). Further, they felt that enhanced independence and neutrality of the telecom infrastructure company would act as a significant catalyst for attracting these new tenants.

The interests of RCom as Infratel's continuing largest tenant will be protected through appropriate contractual arrangements.

This step would facilitate consolidation in the telecom infrastructure industry, leading to scale benefits, higher utilisation of assets, improved productivity and operational synergies, they felt.

RCom felt that the demerger would lead to substantial unlocking of value for shareholders through the cash infusion, leading to substantial reduction of consolidated debt and improved leverage ratios for RCom, contributing to enhanced financial flexibility and the receipt of partial consideration in stock, enabling continued participation in future prospects of the high growth telecom infrastructure sector.

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