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RComm-Aircel announce merger: now third-largest teleco firm in India

Anil Ambani’s Reliance Communications (RComm) on Wednesday signed a deal with Aircel, which is promoted by Malaysia’s Maxis Communications, whereby the two firms will merge their wireless businesses to create the country’s third-largest mobile firm by subscribers as well as spectrum holding.

By: | New Delhi | Published: September 15, 2016 6:59 AM
RComm’s mobile business will be transferred to the new 50:50 JV and a new brand built.  (Reuters) RComm’s mobile business will be transferred to the new 50:50 JV and a new brand built. (Reuters)

Anil Ambani’s Reliance Communications (RComm) on Wednesday signed a deal with Aircel, which is promoted by Malaysia’s Maxis Communications, whereby the two firms will merge their wireless businesses to create the country’s third-largest mobile firm by subscribers as well as spectrum holding. Currently, RComm stands at the fourth position in terms of subscriber base but will overtake the current number three player, Idea cellular, post this merger. The merged entity, however, will rank fourth in terms of revenues at around R25,000 crore, behind Idea’s R35,980 crore in FY16.

Though the two sides did not disclose the structuring of the new 50:50 joint venture firm that will thus be created, officials privy to the development said that the debt of new outfit will be capped at R28,000 crore–14,000 crore from each of the partners. RComm’s mobile business will be transferred to the new 50:50 JV and a new brand built.

“Together with our partners, MCB (Maxis Communications Berhad), we are delighted to have taken the lead in consolidation of the Indian telecom sector, first, with RComm’s acquisition of the wireless business of SSTL (Sistema /MTS), and now, with the combination of our business with Aircel in a 50:50 joint venture with MCB,” Anil D Ambani, chairman of Reliance Group, said in a statement.

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“We expect this combination to create substantial long-term value for shareholders of both, RComm and MCB, given the benefits of the wide-ranging spectrum portfolio and significant revenue and cost synergies,” Ambani added in the statement.

RComm had first signed a non-binding pact with Aircel in December 2015, which was subsequently extended.

In the first full year of operations, or FY18, the combined Ebitda (earnings before interest, tax, depreciation and amortisation) of the JV is estimated at R6,000 crore. This indicates that of its total Ebitda of R7,419 crore in FY16, RComm 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, RComm reported total revenues of R22,113 crore, while the revenue of Aircel is estimated to be around R10,000 crore. Sources said that the R28,000 crore debt of the new firm will be serviced by Ebitda earned within the company.

Since RComm is separately pursuing a transaction to sell its tower and optic fibre business to Brookfield Asset Management, eventually RComm will become an enterprise-focussed firm, as the mobile business will be transferred to the new JV and tower and optic fibre will be divested.

Post the two transactions, RComm’s gross debt burden of Rs 42,651 crore should be meaningfully lighter; currently, RComm’s debt to ebitda is 5.8 while that of Bharti Airtel is 2.8 times and for Idea Cellular, 3.1 times.

Once Rs 14,000 crore of debt from RComm’s balance sheet is transferred to the new JV, it will be left with Rs 28,651 crore. Should the tower sale fetch it around Rs 18,000-20,000 crore —as the company expects — the debt would be lower. RComm expects another 7,000-8,000 crore from the sale of the optic fibre business.

graph rcom

On Wednesday, RComm’s statement said that post the deal with Aircel the debt will reduce to Rs 20,000 crore, which means that it has taken into account the Rs 6,000 crore of spectrum deferred payment amount to the government, also gets transferred to the new entity.

RComm, via an earlier deal with Sistema, has acquired the latter’s 800/850 Mhz spectrum across eight circles, which is valid till 2033. In return Sistema has picked up a 10% stake in RComm.

The new JV entity will have access to spectrum with a validity till 2033-35 and would not need to buy spectrum at the forthcoming auctions.

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