Post the two transactions, RCom's gross debt burden of Rs 42,651 crore, should be meaningfully lighter; currently, RCom's debt to ebitda is 5.8 while that of Bharti Airtel is 2.8 times and for Idea Cellular, 3.1 times
Reliance Communications (RCom), the country’s fourth largest telecom operator, which has been looking to create a 50:50 joint venture with Aircel promoted by Maxis Communications, expects to close out the deal by the end of June.
The new entity, a senior executive observed, should kick off operations with revenues of around Rs 25,000 crore.
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Separately, RCom is pursuing a transaction to sell its tower and optic fibre business to private equity firm Tillman Global Holdings.
Post the two transactions, RCom’s gross debt burden of Rs 42,651 crore, should be meaningfully lighter; currently, RCom’s debt to ebitda is 5.8 while that of Bharti Airtel is 2.8 times and for Idea Cellular, 3.1 times.
According to a senior company executive, the Aircel transaction would be completed first ahead of the sale of the towers business with all regulatory and other approvals expected in six months time. RCom had signed a non-binding pact with Aircel in December, which was subsequently extended.
Rcom’s mobile business will be transferred to the new 50:50 JV and a new brand built, the executive explained. The debt of new outfit will be capped at Rs 28,000 crore – Rs 14,000 crore from each of the partners.
In the first full year of operations, or FY18, the combined Ebitda (earnings before interest, tax, depreciation and amortisation) is estimated at Rs 6,000 crore. This indicates that of its total Ebitda of Rs 7,419 crore in FY16, RCom 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.
In FY16, RCom reported total revenues of Rs 22,113 crore while the revenue of Aircel is estimated to be around Rs 10,000 crore.
The executive said the Rs 28,000 crore debt of the new firm will be serviced by Ebitda earned within the company.
Post the two deals, 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.
Once Rs 14,000 crore of debt from RCom’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. RCom expects another 7,000-8,000 crore from the sale of the optic fibre business.
The executive said that by July, RCom will shut down its CDMA business and all its subscribers will be migrated to either its GSM business (2G or 3G) or on 4G services for which it has a sharing pact with Reliance Jio Infocomm. The company has already entered into a spectrum sharing and trading pact with Jio for the 800 Mhz spectrum it holds.
RCom, via an earlier deal with Sistema, has acquired the latter’s 800/850 Mhz spectrum across eight circles, which is valid till 2033. In lreturn Sistema has picked up a 10% stake in RCom.
Once its deal with Aircel is concluded, it will have access to spectrum with a validity till 2026-28 and would not need to buy spectrum at the forthcoming auctions. The gross debt of the Reliance Group excluding financial services is Rs 1,13,903 crore at the end of March 2016. The net debt is Rs 1,08,031 crore while the gross debt to equity is 1.3 times.