What’s next for Reliance Communications and Aircel after dropping merger

Reliance Communications Anil AmbaniAnil Ambani-promoted Reliance Communications on Sunday announced that it will drop its merger plans to grab small rival Aircel, a company owned by Maxis.

The debt-ridden RCOM and Aircel signed binding agreements in September 2016 for the merger of RCOM’s mobile businesses with Aircel in order to reduce debt and become a stronger player in the Indian telecom market.

Reliance Communications faces more troubles

The latest development shows the strategy of Anil Ambani to take up the consolidation route to sustain in business after started losing wireless customers to both Airtel and Reliance Jio is not assisting Reliance Communications.

The strategy was to offer 50 percent stake to Reliance Communications and Maxis in the merged company with equal board positions. The combined business of RCOM and Aircel would have become the top three telecom operator in India — behind Idea-Vodafone and Bharti Airtel.

Reliance Communications was aiming to reduce debt by Rs 20,000 crore or $3 billion or over 40 percent of total debt by merging with Aircel. The target was to have a merged company with assets of Rs 65,000 crore or $9.7 billion and net worth of Rs 35,000 crore or $5.2 billion. The estimated NPV of Capex and Opex synergies was Rs 20,000 crore or $3 billion.

Aircel looks for new partners

Malaysia based telecom operator Maxis owns 74 percent equity stake in Aircel with the balance held by Indian promoters. The latest development indicates that Aircel could be looking for an alternative partner like Airtel to sustain in the telecom business in India.

Maxis promoters are already facing 2G spectrum related investigation in India. Aircel, without adequate spectrum for 4G business, will be forced to rely on its 2G and limited 3G presence in India for business growth.
Jio and Airtel share in July 2017
Reliance plans

“Legal and telecom regulatory uncertainties, and interventions by vested interests, have caused delays in receipt of approvals for the transaction. Competitive intensity in the Indian telecom sector, together with policy directives adversely impacting bank financing for this sector, have also seriously affected industry dynamics,” said Reliance Communications in a statement.

Reliance Communications will evaluate opportunities for monetization of the spectrum via trading and sharing arrangements.

Reliance Communications will evaluate an alternate plan for its mobile business, through optimization of its spectrum portfolio and adoption of a 4G focused mobile strategy.

Reliance Communications has a 4G mobile network through spectrum sharing and ICR agreements with Reliance Jio. Mukesh Ambani, the brother of Anil Ambani, promotes Reliance Jio. Reliance Jio that kicked off services in September 2016 has 130 million 4G subscribers.

The acquisition of the mobile business of Sistema Shyam Teleservices (SSTL) is expected to be completed this month.

The addition of SSTL’s spectrum in the 800-850 MHz band will strengthen RCOM’s spectrum by 30 Mhz, and extend the spectrum validity in 8 circles in the country till 2033.

In October 2016, Reliance Communication said the acquisition of MTS India is assisting the company in adding 8 million customers including 2 million data customers and revenues of Rs 1500 crore or $230 million annually. Recently, MTS lost significant share in India.

Reliance Communications has spectrum across 800 MHz, 900 MHz, 1800 MHz and 2100 MHz spectrum bands aggregating 200 Mhz — valued at over Rs 19,000 crore — for the balance of validity period, based on last auction pricing.

Reliance Communications will also be monetizing 125 acres of land in Dhirubhai Ambani Knowledge City, Navi Mumbai and property near Connaught Place, New Delhi in nearly 4 acres.

Reliance Communications will implement its plans for monetization of its tower and fiber assets.

Reliance Communications said it will be under a standstill period till December 2018. Shareholders of the Reliance Communications at the Annual General Meeting on September 26, 2017 have approved issuance of equity shares to financial lenders by conversion of loans.

Reliance Communications also announced the elevation of the company’s senior executives into various boards.

Punit Garg, president, Telecom Business; Manikantan V, chief financial officer (CFO); Suresh Rangachar, head of the Fiber and Tower Business; Gurdeep Singh, co-CEO of RCOM; and William (Bill) Barney, co-CEO of RCOM.

Reliance Communications said the development is the outcome of the entry of Reliance Jio that resulted into a weak telecom sector.

Baburajan K