Reliance Communications (RCom) has called off plans to merge its wireless business with rival Aircel, citing legal and regulatory uncertainties as well as ‘intervention of vested interests to derail the deal’. Had the merger gone through, it would have created India’s third-largest telecom provider with 175 million subscribers.
The Anil Ambani-led firm, with ₹42,000 crore in debt, is exploring other alternatives to reduce debt through a possible sale of spectrum, tower and real estate assets as the six-month moratorium allowed by the lenders to repay ₹25,000 crore of outstanding loans ends on December 31.
The proposed deal with Aircel signed last September and the sale of its tower assets to Brookfield were together expected to reduce RCom’s debt by 60%. RCom had reported a net loss of ₹1,796 crore in FY17.
The entry of Mukesh Ambani-led Reliance Jio with free plans last September had triggered a price war in the industry. Attempts at consolidation too followed, across the sector.
In March, Vodafone India and Idea Cellular had announced plans to merge. On completion, the $23-billion deal will create India’s largest telecom firm with a subscriber base exceeding 400 million.. Earlier, Airtel had said it would acquire Telenor India’s operations in seven circles with a combined subscriber based exceeding 300 million.
“Legal and regulatory uncertainties, and various interventions by vested interests, have caused inordinate delays in receipt of relevant approvals for the proposed transaction. As a result of the various factors aforesaid, the merger agreement has lapsed. The Board of Directors of RCom at a meeting held [on Sunday] in Mumbai approved the same,” said RCom in a notification to the stock exchanges.
“Unprecedented competitive intensity in the Indian telecom sector, together with fresh policy directives adversely impacting bank financing for this sector, have also seriously affected industry dynamics,” said the RCom statement.
RCom shares on the BSE had declined 3.5% to ₹19.20 on Friday, valuing the company at ₹4,779 crore.
Mobile business
RCom’s board has decided to evaluate an alternate plan for its mobile business, through ‘optimisation of its spectrum portfolio and adoption of a 4G-focused mobile strategy’ as the company has access to the Reliance Jio network through spectrum-sharing and ICR agreements.
The combination of the mobile business of Sistema Shyam Teleservices Ltd (SSTL) into RCom is also expected to be completed this month. It is expected to increase RCom’s spectrum portfolio across the 800/900/1800/2100 Mhz spectrum bands aggregating 200 Mhz, valued at over ₹19,000 crore for the balance of the validity period, based on the pricing at the last auction. “The company will evaluate opportunities for monetisation of the same through trading and sharing arrangements,” said the statement.
As part of the ongoing transformation and in order to enhance value for all stakeholders, the RCom board has ‘reaffirmed the focus on these stable, capital-light B2B businesses including enterprise, carrier, Internet data centre and global submarine cable network in India and overseas across continents. These businesses have sustained and predictable revenues and profits, with immense growth potential, said the company statement.
The company will continue to implement its plans for monetisation of its tower and fiber assets and has made ‘good progress in its monetisation plans for prime real estate assets, including at Dhirubhai Ambani Knowledge City, Navi Mumbai ad-measuring nearly 125 acres, with development rights of potentially over 17 million sq. ft. and prime property near Connaught Place, New Delhi ad-measuring nearly 4 acres, the statement said. The company is expecting ₹10,000 crore from the DAKC complex alone.
Standstill
RCom continues to be under a ‘standstill’ (or moratarium on loan repayment) period till December 2018 and has said it expected to complete the SDR process as per applicable guidelines. Shareholders of the company at the Annual General Meeting held on September 26, 2017 have approved issuance of equity shares to lenders by conversion of loans. Swedish equipment maker Ericsson has dragged RCom to the NCLT to initiate insolvency proceedings last month to recover its dues of ₹1050 crore.
