Re­liance-Aircel merger may run into debt

The Pak Banker - - COMPANIES/BOSS -

Re­liance Com­mu­ni­ca­tions Ltd's (R-Com's) plan to com­bine its wire­less busi­ness with smaller ri­val Aircel Ltd to cre­ate a new en­tity is un­likely to be con­cluded within the 90 days that the tel­cos gave them­selves to fi­nal­ize the merger, com­pany of­fi­cials and an­a­lysts said

The merger is sub­ject to the con­di­tion that the two par­ties each re­duce their debt to less than Rs.10,000 crore. That con­di­tion is un­likely to be met un­less R-Com man­ages to sell its tower as­sets and Aircel sells some of its spec­trum. On 15 Jan­uary, Mint re­ported that R-Com had ex­tended by two weeks the dead­line for ex­clu­sive talks with Till­man Global Hold­ings Llc. and TPG Asia Inc. to con­clude the sale of its tele­com tow­ers and op­tic fi­bre as­sets-a deal that may be worth as much as Rs.30,000 crore.

"The tower deal has been de­layed by more than a month now. It does look like it will hap­pen soon but there is still no word on the Aircel part of it. Un­til that hap­pens, there can be no deal. Most likely those talks (be­tween Aircel and R-Com) will get ex­tended till af­ter the spec­trum auc­tion," said an an­a­lyst who de­clined to be named.

The govern­ment is ex­pected to auc­tion spec­trum across all avail­able bands later this year, once the tele­com reg­u­la­tor's Jan­uary rec­om­men­da­tions on re­serve price and quan­tity to be auc­tioned is ap­proved by the cab­i­net. A per­son fa­mil­iar with dis­cus­sions re­lated to R-Com's tower trans­ac­tion said the deal was be­ing de­layed be­cause the top man­age­ment of the group was busy with a num­ber of deals to re­duce debt across the group. On 22 De­cem­ber, R-Com said it was en­ter­ing into 90-day ex­clu­sive talks with Maxis Com­mu­ni­ca­tions Bhd and Sindya Se­cu­ri­ties and In­vest­ments Pvt. Ltd, the share­hold­ers of Aircel, to con­sider the com­bi­na­tion of the wire­less busi­ness of RCom and Aircel.

R-Com's debt stood at around Rs.39,000 crore at the end of the De­cem­ber quar­ter while Aircel's debt was es­ti­mated at Rs.20,000 crore. To pro­ceed with the merger, Aircel may have to sell some of its spec­trum-ideally in the 2,300 mega­hertz (MHz) band that it bought in the 2010 spec­trum auc­tion. Aircel paid Rs.3,438 crore for the spec­trum in seven cir- cles and an ad­di­tional Rs.6,500 crore for 2,100Mhz spec­trum in 13 cir­cles.

How­ever, Bharti Air­tel Ltd, the most likely can­di­date to buy the air­waves, may wait till the next auc­tion to con­clude such a trans­ac­tion as govern­ment rules re­strict a sin­gle com­pany from own­ing more than 25% of the spec­trum avail­able in a cir­cle. Air­tel has reached the limit in at least Odisha and Andhra Pradesh af­ter buy­ing Qual­comm's 4G air­waves in four cir­cles. "We keep re­ceiv­ing pro­pos­als from var­i­ous quar­ters. We re­view them from time to time. As and when any pro­posal gets fi­nal­ized we make ap­pro­pri­ate dis­clo­sures," an Air­tel spokesper­son said.

Aircel's air­waves in eight cir­cles would give Air­tel a 4G foot­print across 18 cir­cles, al­most on a par with Mukesh Am­bani-owned Re­liance Jio In­fo­comm Ltd, the only op­er­a­tor to hold 4G air­waves across all 22 cir­cles. Air­tel has al­ready rolled out its 4G ser­vices in 15 cir­cles so far while Aircel has started ser­vices in six of its eight 4G cir­cles.

The Aircel-R-Com merger will likely cre­ate In­dia's fourth largest telco, af­ter Air­tel, Voda­fone In­dia Ltd and Idea Cel­lu­lar Ltd. R-Com is in the process of com­plet­ing the ac­qui­si­tion of Shyam Sis­tema Te­le­Ser­vices Ltd. The Anil Am­bani-con­trolled com­pany is also sell­ing some of its real es­tate as­sets in Delhi and Mum­bai to cut debt. "If they buy the spec­trum from Aircel, they could get it cheaper than from the auc­tion, but there are spec­trum lim­its on how much they can buy.

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