RCom-Aircel JV deal likely by June end

RCom had signed a non-binding pact with Aircel in December, which was subsequently extended

Reliance Communications (RCom), the country's fourth largest telecom operator, which has been looking to create a 50:50 joint venture with Aircel promoted by Maxis Communications, expects to close out the deal by the end of June.

The new entity, a senior executive observed, should kick off operations with revenues of around R25,000 crore.

Separately, RCom is pursuing a transaction to sell its tower and optic fibre business to private equity firm Tillman Global Holdings. Post the two transactions, RCom's gross debt burden of R42,651 crore, should be meaningfully lighter; currently, RCom's debt to ebitda is 5.8 while that of Bharti Airtel is 2.8 times and for Idea Cellular, 3.1 times.

According to a senior company executive, the Aircel transaction would be completed first ahead of the sale of the towers business with all regulatory and other approvals expected in six months time. RCom had signed a non-binding pact with Aircel in December, which was subsequently extended.

Rcom's mobile business will be transferred to the new 50:50 JV and a new brand built, the executive explained. The debt of new outfit will be capped at R28,000 crore – R14,000 crore from each of the partners.

In the first full year of operations, or FY18, the combined Ebitda (earnings before interest, tax, depreciation and amortisation) is estimated at R6,000 crore. This indicates that of its total Ebitda of R7,419 crore in FY16, RCom will transfer the operating profits of the wireless piece amounting to around R4,500 crore. Aircel has an Ebitda of an estimated R1,500 crore.

In FY16, RCom reported total revenues of R22,113 crore while the revenue of Aircel is estimated to be around R10,000 crore. The executive said the R28,000 crore debt of the new firm will be serviced by Ebitda earned within the company.

Post the two deals, Rcom will become an enterprise-focussed fir m as the mobile business will be transferred to the new JV and tower and optic fibre will be divested.

Once R14,000 crore of debt from RCom's balance sheet is transferred to the new JV it will be left with R28,651 crore. Should the tower sale fetch it around R18,000-20,000 crore—as the company expects—the debt would be lower. RCom expects another R7,000-8,000 crore from the sale of the optic fibre business.

The executive said that by July, RCom will shut down its CDMA business and all its subscribers will be migrated to either its GSM business (2G or 3G) or on 4G services for which it has a sharing pact with Reliance Jio Infocomm. The company has already entered into a spectrum sharing and trading pact with Jio for the 800 Mhz spectrum it holds.