Reliance Communications aborts Aircel deal in debt-cut blow

MUMBAI: Reliance Communications Ltd’s plan to merge with Aircel Ltd collapsed in a blow to the Indian mobile phone carriers’ plans to pare debt and gain scale to take on bigger rivals.

“Legal uncertainties” and “interventions by vested interests” caused delays in regulatory approvals, Reliance Communications said in an exchange filing on Sunday. Consequently, the merger has “lapsed with mutual consent,” it said.

Billionaire Anil Ambani’s Reliance and T. Ananda Krishnan’s Aircel, a unit of Malaysiabased Maxis Communications Bhd, were due to complete the transaction this year. India’s mobile carriers have been locked in a price war that had worsened with the entry of Ambani’s older brother, India’s richest person, into the market a year ago.

The deal would have created India’s fourth-largest carrier and given the companies more room to pay down combined debt that soared to about 600 billion rupees (US$9.2bil) as of the end of last year. Aircel was one of several possible transactions that Ambani was pushing as a way to reduce Reliance’s debt.

Reliance Communications will consider an alternate plan to cut debt, which includes sharing and trading of its airwaves valued at about 190 billion rupees, the company said in the statement on Sunday. It will also consider plans to monetise its real estate, tower and fibre businesses.

Banks that lent to Ambani’s companies have met with executives from the group to push for a reduction in debt by selling assets, people familiar with the matter, who didn’t want to be named because the talks were private, have said. RCom, as the wireless unit is known, got a seven-month reprieve from lenders in June to raise money from deals.

Under the terms of the proposed merger with Aircel, Reliance would have transferred more than 40% of its debt, or 200 billion rupees, to a new joint venture. Aircel, which is controlled by a unit of Maxis Bhd, would have offloaded 40 billion rupees of debt to the venture.

For Krishnan, a deal with Reliance would have helped him hedge some of the risk of vying for subscribers in India’s fragmented mobile phone services market. Behind the proposed merger were the rising difficulties of making money in a market that has some of the lowest phone rates in the world. One company responsible for escalating the rivalry is the market’s newest entrant, Jio, which is controlled by Ambani’s older brother Mukesh. As of the end of July, Aircel was the sixth-largest operator in India with a 7.6% market share, followed by Reliance Communications with 6.9%. At Reliance, which for years was the country’s second-largest carrier, it’s been a long descent. The company posted profit declines for six out of seven years before posting its first annual loss last fiscal year.