The wireless business of RCom is to be combined with Aircel, according to a press release by the companies on 14 September 2016. RCom and MCB will hold 50% each in the merged entity with equal representation on board and committees.
Transaction will reduce debt of RCom by Rs 20,000 crore ($ 3 billion), which is over 40% of total debt, and Aircel debt by Rs 4,000 crore ($ 600 million) by end of FY17.
The combined entity will have spectrum validity until 2033-2035. RCom will continue to own and operate its other businesses in the domestic and global enterprise space, data centres, optic fibre and related telecom infrastructure, besides owning real estate. (All details above are per the press release).
One potential opportunity for the merged entity could be their 3G spectrum holding with 10 MHz in 8 circles. At present incumbents mostly hold only one carrier in 3G spectrum band. We maintain our ‘reduce’ rating with an unchanged TP of Rs 45 on RCom. We continue to value the company using DCF. Key upside risk is the company’s ability to monetize tower assets in the near term.