Rcom calls off wire­less unit merger with Air­cel

Reliance Com­mu­ni­ca­tions is now look­ing at other ways to cut debt, in­clud­ing the sale of real es­tate as­sets

Mint Asia ST - - News - BMY A LVI K A J O S H I

Reliance Com­mu­ni­ca­tions Ltd (Rcom) has called off the merger of its wire­less ser­vices busi­ness with Air­cel Ltd, cit­ing reg­u­la­tory de­lays and op­po­si­tion from some cred­i­tors, in a devel­op­ment that will fur­ther im­pede its ef­forts to pare its huge debt.

Rcom said it is now look­ing at al­ter­na­tive ways to re­duce its debt, in­clud­ing sale of real es­tate as­sets and “op­ti­miza­tion of spec­trum”, it said in a fil­ing to stock ex­changes on Sun­day.

The merger of the wire­less busi­ness with Air­cel and a sep­a­rate deal to sell Rcom’s tele­com tower as­sets was the cor­ner­stone of the Anil Am­bani-con­trolled com­pany’s plan to pare its Rs45,000 crore debt, amid pres­sure on earn­ings be­cause of ag­gres­sive tar­iffs of­fered by Reliance Jio In­fo­comm Ltd, con­trolled by his elder brother Mukesh.

The firm said that the merger agree­ment with Air­cel was al­lowed to “lapse by mu­tual con­sent” as the deal had been fac­ing reg­u­la­tory de­lays and op­po­si­tion from op­er­a­tional cred­i­tors.

Rcom’s lenders had in­voked strate­gic debt re­struc­tur­ing (SDR) for the tele­com firm in June. SDR al­lows cred­i­tors to con­vert a firm’s debt into eq­uity and take over the man­age­ment.

The banks, how­ever, al­lowed the firm to post­pone debt-ser­vic­ing pay­ments till De­cem­ber af­ter it pre­sented a re­struc­tur­ing plan in­volv­ing the sale of its tele­com tower busi­ness and the spin-off and merger of its wire­less as­sets.

In this stand­still pe­riod, banks will not con­vert debt they are owed into eq­uity and the firm’s debt will be clas­si­fied as stan­dard debt on the books of lenders. Rcom stated that the “stand­still pe­riod will con­tinue till De­cem­ber 2018”.

The firm had signed bind­ing agree­ments in Septem­ber 2016 for the merger of its wire­less as­sets with Air­cel, the ex­change no­ti­fi­ca­tion stated. Rcom was ex­pect­ing a trans­fer of Rs14,000 crore of debt to the merged en­tity.

Rcom is also look­ing to sell a 51% stake in its tower arm to Canada-based Brook­field In­fra­struc­ture. It ex­pects to net Rs11,000 crore from the stake sale. On 2 June, Reliance Group chair­man Anil Am­bani had said the two deals will help the firm re­duce debt by 60%.

With the merger talks col­laps­ing, the delever­ag­ing process is likely to be de­layed fur­ther. The plan to sell a ma­jor­ity stake in its tower arm re­mains in­tact, a com­pany spokesper­son said. “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,” Rcom told stock ex­changes.

The merger had been fac­ing head­winds from var­i­ous op­er­a­tional cred­i­tors as well as reg­u­la­tory au­thor­i­ties. In Septem­ber, the In­dian unit of Swe­den’s Eric­s­son filed in­sol­vency pe­ti­tions against the tele­com com­pany and two of its sub­sidiaries—reliance In­fratel and Reliance Tele­com—be­fore the Na­tional Com­pany Law Tri­bunal (NCLT) in Mum­bai to re­cover its dues worth Rs1,154 crore. The hear­ing for ad­mis­sion of the pe­ti­tion has been ad­journed till 6 Oc­to­ber.

The merger had al­ready been ap­proved by the Se­cu­ri­ties and Ex­change Board of In­dia, the Com­pe­ti­tion Com­mis­sion of In­dia and the stock ex­changes. Some of Rcom’s cred­i­tors such as China Devel­op­ment Bank, which had ear­lier ob­jected to the deal as it was not pre­sented to them be­fore be­ing filed with the tri­bunal, have also given con­di­tional con­sent.

The pe­ti­tion for ap­proval of the merger was ad­mit­ted by NCLT as well in Au­gust. The tele­com depart­ment had also raised ob­jec­tions against the merger and had said the Supreme Court had re­strained Air­cel from sell­ing and trad­ing 2G spec­trum al­lot­ted to it in 2006 in a 6 Jan­uary or­der.

Rcom also said that it will fo­cus more on busi­ness to busi­ness (B2B), non-mo­bile busi­nesses. Rcom’s B2B busi­nesses in­clude en­ter­prise, car­rier, in­ter­net data cen­tre and global sub­ma­rine ca­ble net­work in In­dia and over­seas.

“Rcom ex­pects mon­e­ti­za­tion of tower and fiber as­sets and real es­tate along with op­ti­miza­tion of spec­trum, port­fo­lio to gen­er­ate pro­ceeds of over Rs25,000 crore for debt re­duc­tion,” the re­lease stated.

Reliance Group com­pa­nies have sued HT Me­dia Ltd, Mint’s pub­lisher, and nine oth­ers in the Bom­bay high court over a 2 Oc­to­ber 2014 front-page story that they have dis­puted. HT Me­dia is con­test­ing the case.

AB­HI­JIT BHATLEKAR/MINT

Par­ing debt: Reliance Group chair­man Anil Am­bani. Rcom said it is now look­ing at al­ter­na­tive ways to re­duce its debt, in­clud­ing sale of real es­tate as­sets and “op­ti­miza­tion of spec­trum”.

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