Three-way consolidation with MTS may create country’s second-largest telco
Reliance Communications on Tuesday said it had entered into a 90-day non-binding exclusivity period with Maxis Communications Berhad and Sindya Securities and Investments, shareholders of Aircel, to consider potential combination of their Indian wireless business.
This comes a month after Reliance Communications’ announcement of a similar deal with MTS, the Indian arm of Russia’s Sistema Group, which signalled the beginning of consolidation in the telecom sector.
Reliance Communications could, after the two mergers, become the country’s second-largest telecom company by subscribers after Sunil Mittal’s Bharti Airtel.
Reliance Communications is now the fourth-largest telecom company by subscribers trailing Vodafone and Idea Cellular. Aircel comes in at fifth position.
Aircel offers 2G services in 19 circles, excluding Kolkata, Delhi, Mumbai and Chennai.
It has 3G spectrum for 13 circles and 4G spectrum for eight and has over 84 million users.
Large telecom companies are looking to acquire smaller rivals to add to their spectrum holdings and improve network capabilities.
With the impending entry of Mukesh Ambani’s Reliance Jio and the fact that clearances are difficult to come by, the dozen-company industry may consolidate through mergers rather than acquisitions.
The telecom industry is moving towards a five-plus one model, with five private companies and state-owned Bharat Sanchar Nigam Limited.
Reliance Communications has been trying to sell assets to reduce its debt, which stood at Rs 39,800 crore (Rs 398 billion) at the end of the September quarter.
Earlier this month, the company signed a non-binding agreement to sell its cell towers and related infrastructure to private equity firms TPG Asia and Tillman Global Holdings.
Independent estimates have valued the size of the deal at Rs 20,000-22,000 crore (Rs 200-220 billion).
The two sides have entered into an exclusivity agreement, valid till January 15, 2016.
In November, RCom announced merger with Sistema Shyam TeleServices’ operations with itself in an all-stock deal.
Sistema will receive a 10 per cent stake in RCom once the deal, negotiated over months, goes through.
There was still some distance to be traversed in the MTS deal, however, because the $600 million spectrum liberalisation cost could be a deal breaker, sources in the know said.
RCom’s shareholders were to receive free listed shares in the new combined company after both mergers, sources said.
The over Rs 10,000-crore (Rs 100-billion) debt of RCom after the tower deal was to be transferred to a separate listed company, they added.
A Sistema Shyam TeleServices spokesperson, on Tuesday said, “The deal between Reliance Communications and Aircel is not in conflict with the MTS deal.
In-principle, we support all initiatives that increase the value of assets.
The proposed merger with Aircel would have substantial benefits, including synergies in operating and capital expenditure and revenue enhancement, a RCom statement said.
The potential merger will exclude RCom’s cell towers and optical fiber infrastructure, which the company is selling separately as assets.
“With the merger of MTS and Aircel, Reliance Communications will become a formidable entity with approximately 200 mn subscribers.
"And with spectrum consolidation, it can better plan its long-term business strategy.
"It will allow them to target high-end services on mobile broadband and business-centric mobility solutions,” said Amresh Nandan, research director, Gartner.
TIES THAT MAY BIND
- Earlier this month, RCom signed a non-binding pact to sell its tower assets to private equity firm TPG Asia and Tillman Global Holdings. Independent estimates valued the size of the deal to be Rs 20,000-22,000 crore (Rs 200 billion-220 billion)
- In November, RCom announced a merger with Sistema Shyam TeleServices operations in an all-stock deal
- On Tuesday, RCom entered into a 90-day exclusivity period, non-binding, with Maxis Communications Berhad and Sindya Securities & Investments Pvt Ltd
Image: Reliance Communication Chairman Anil Ambani. Photograph: Punit Paranjpe/Reuters
