Reliance Communications Ltd.’s shares plunged to a record low after the company aborted a plan to merge with Aircel Ltd.
Reliance Communications Ltd.’s shares plunged to a record low after the company aborted a plan to merge with Aircel Ltd., dealing a blow to the Indian mobile phone carriers’ plans to pare debt and gain scale to take on bigger rivals. Shares of the company fell 10.7 percent Tuesday to 17.15 rupees, the lowest level since it began trading in March 2006. The benchmark S&P BSE Sensex gained 0.7 percent. The carrier’s bonds due in 2020 were set for their biggest daily decline in more than seven weeks. The securities dropped 6.7 cents on the dollar to 47.2 cents.
The company controlled by billionaire Anil Ambani said “legal uncertainties” and “interventions by vested interests” caused delays in regulatory approvals scuttled the transaction. Reliance and T. Ananda Krishnan’s Aircel, a unit of Malaysia-based Maxis Communications Bhd., were due to complete the deal this year and 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 ($9.2 billion) as of the end of last year.
“The mess has only turned murkier” for Reliance Communications, said Sanjiv Bhasin, executive vice president of IIFL Holdings Ltd. “The only option before the company now is to see how soon they can strip off their assets like towers, spectrum and real estate.”
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 a statement on Sunday. It will also consider plans to monetize its real estate, tower and fiber businesses.
“With the Aircel merger plans falling through, Reliance Communications will face an uphill task to reduce its debt,” said R. Lakshmanan, a senior research analyst at CreditSights. “The other alternative mooted by the company – sale of real estate assets – is unlikely, given the sluggish Indian property market after demonetization and the goods and services tax roll-out.”
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.
The firm’s lenders including State Bank of India, plan to meet as early as this week after the merger with Aircel was called off, according to people with the knowledge of the matter, who aren’t authorized to speak publicly and asked not to be identified. State Bank of India’s policy is to refrain from commenting on individual accounts and their treatment, its spokesman said in response to an email query regarding the lender meeting.