Reliance Communications (RCom) board on Wednesday approved the company’s merger with Aircel, in one of the biggest deals in the telecom space in recent times. It also comes at a time when Mukesh Ambani’s Reliance Jio has made an aggressive entry into the telecom industry, sending jitters among incumbents. RCom and Maxis Communications Berhad (MCB) will each hold a 50 per cent stake in the merged entity, with equal representation on the board of directors and all committees. The company will be managed by an independent professional team under the supervision of the Board.
RCOM’s overall debt will reduce by Rs 20,000 crore ($3 billion) or over 40 per cent of its total debt, and Aircel’s debt will reduce by Rs 4,000 crore (4600 million), upon completion of the transaction in 2017. The merged company will be one of India’s largest private sector companies, with an asset base of over Rs 65,000 crore ($9.7 billion) and net worth of Rs 35,000 crore ($5.2 billion), said Reliance’s release. The merged company 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.
Reliance Communications also informed the bourses that in order to further strengthen the balance sheet, fund future growth plans, and enhance financial flexibility, both RCom and MCB will remain committed to additional equity infusion to the the merged company.
Commenting on the merger, Anil Ambani, Chairman, Reliance Group, said, “Together with our partners, MCB, we are delighted to have taken the lead in consolidation of the Indian telecom sector, first, with RCOM’s acquisition of the wireless business of SSTL (Sistema/MTS), and now, with the combination of our business with Aircel Ltd. in a 50:50 Joint Venture with MCB. We expect this combination to create substantial long term value for shareholders of both, RCOM and MCB, given the benefits of the wide-ranging spectrum portfolio and significant revenue and cost synergies.”
Experts have given a thumbs up to the merger and see its as a positive move. Chandan Taparia, analyst with Anand Rathi Financial Services said, “The merger move will increase the subscriber base of Reliance Communications, which is positive for the company.” He is bullish on Reliance Communication shares and believes if it crosses Rs 55 in coming sessions, then it can touch Rs 70 in the upcoming quarters.
Fitch Ratings has a rating of BB- with stable outlook on Reliance Communications. “We expect neutral to negative credit rating for Reliance Communications post the deal,” Fitch said.
Commenting on the deal TV Ramachandran told ET Now, “RCom-Aircel merger may turn out to be long term positive for industry. One must enable fresh investment in the telecom space and serve consumers better.”
Reports suggest that the merger will create a subscriber base of 190 million with Bharti Airtel having a subscriber base of 251 million, followed by Vodafone with 198 million and Idea Cellular with subscriber base of 175 million. Reliance Communication has spent Rs 5,384 crore in the 850 MHZ space. Share price of the company on Wednesday ended 2.72 per cent up at Rs 51.05. The announcement came after market hours.
Sanjay Kapoor, telecom expert and ex-Airtel honcho said, “I think the merged company will have to undergo massive transformation to be competitive. I believe that the deal between RCom-Aircel is a survival tactic.” “There is going to be a war among deep-pocketed players. RCom & Aircel’s move is in the right direction. I expect to see further consolidation in the Indian telecom sector,” he said.
SP Tulsian told CNBC-TV 18 that the real debt reduction for the group will happen when Reliance Infra’s towers are monetised. “RCom-Aircel deal is seen as a delayed one. I don’t expect the merged entity to see a dramatic change in profitability.”