The merger of Reliance Communications and Aircel’s mobile business has created India’s third-largest mobile firm by subscribers as well as spectrum holding. The combined entity has an asset base of over Rs 65,000 crore ($9.7 billion) and net worth of Rs 35,000 crore ($5.2 billion). Anil Ambani, Chairman of Reliance Group expects the combination to create substantial long term value for shareholders of both, RCOM and MCB. MCB is Malaysia’s Maxis Communications, which is the promoter of Aircel.
The deal comes at a time when Reliance Jio has made an aggressive entry into the telecom sector, and is being seen as a credible threat to incumbents like Bharti Airtel, Idea Cellular and Vodafone. Analysts however, are not too enthused by the merger and feel that the new entity has a long way to go before it can make a significant mark. Sanjay Kapoor, ex-Airtel honcho has said, “The debt levels of the company will hinder fund raising in a big way. I do not see merged entity combating big incumbents like Vodafone, Idea.” “To see synergies from this kind of merger looks challenging,” he said, adding, “I believe the deal between Rel Communications and Aircel is a survival tactic”. However, there is no denying that the deal is one of the biggest in the history of Indian telecom industry. We take a look at 10 interesting facts about it:
1) The MergedCo will have the second-largest spectrum holding amongst all operators, aggregating 448 MHz across the 850, 900, 1800 and 2100 MHz bands, and will enjoy enhanced business continuity through extended validity of spectrum holdings till 2033-35.
Watch: Reliance Communications and Aircel deal sealed
2) RCom and Aircel will hold 50 per cent each in the new company. The board of the new company will have equal representation from the two sides.
3) According to the company’s statement, following the deal RCom’s debt will reduce by Rs 20,000 crore ($3 billion) , that is by over 40% of its total debt. Aircel’s debt will reduce by Rs 4,000 crore (4600 million), upon completion of the transaction in 2017. Both the companies will transfer Rs 14,000 crore of debt each to the joint venture, taking the total debt of the new company to Rs 28,000 crore. This excludes Rs 6,000 crore of spectrum payment liability.
4) RCom is India’s 4th-biggest telecom operator with almost 110 million customers. On the other hand, Aircel ranks fifth and has a subscriber base of 84 million. In terms of market share, RCom had 9.8 per cent, while Aircel had 8.5 per cent. Sistema, which RCom earlier merged with, had 0.7 per cent share.
5) The net present value (NPV) of capex and opex synergies is estimated at Rs 20,000 crore ($3 billion). The merged company will be managed by an independent professional team under the supervision of the Board, the statement said.
6) On consummation of the merger, RCom and MCB are committed to additional equity infusion into the merged company. This is meant to further strengthen the balance sheet, fund future growth plans, and enhance financial flexibility. Both parties are already in talks with international investors in this regard.
7) The companies had entered into exclusive talks in December last year for the deal, which is subject to regulatory approvals and consent of creditor banks. Goldman Sachs, SBI Capital Markets, Standard Chartered and A.T. Kearney were among the advisors for the deal.
8) 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 Rs 6,000 crore. This indicates that of its total Ebitda of Rs 7,419 crore in FY16, RComm will transfer the operating profits of the wireless piece amounting to around Rs 4,500 crore. Aircel has an Ebitda of an estimated Rs 1,500 crore.
9) In FY16, RComm reported total revenues of Rs 22,113 crore, while the revenue of Aircel is estimated to be around Rs 10,000 crore. Sources told FE that that the Rs 28,000 crore debt of the new firm will be serviced by Ebitda earned within the company.
10) 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.
In January this year, RCom had announced the acquisition of Russian conglomerate Sistema’s Indian telecom unit in an all-stock deal, creating an operator with 118 million subscribers.