Reliance Communications (RCom), controlled by Anil Ambani, on Sunday called off its proposed merger with Aircel. While the merger would have enabled the company to reduce its debt through the strategic debt restructuring (SDR) mechanism initiated by lenders, RCom said its board has considered alternate debt reduction plans including optimisation of its spectrum portfolio.
Legal and regulatory uncertainties and various interventions by vested interests have caused inordinate delays in receipt of relevant approvals for the proposed transaction, RCom said. The company’s SDR deadline will expire in December 2017.
“Unprecedented competitive intensity in the Indian telecom sector, together with fresh policy directives adversely impacting bank financing for this sector have also seriously affected industry dynamics,” RCom said in a statement. “As a result of the various factors aforesaid, the merger agreement has lapsed. The board approved the same,” RCom said.
RCom and Aircel had signed binding agreements in September 2016 for the merger which would have created an entity with assets worth Rs 65,000 crore. RCom and Maxis Communications Berhad (MCB) would have held 50 per cent each in the merged entity with equal representation on the board and committees. The transaction would have reduced RCom’s debt by Rs 20,000 crore, while Aircel’s debt would have gone down by Rs 4,000 crore on closing in 2017, the two companies had said.
While it’s not clear about the fate of the SDR plan initiated by lenders, RCom said, “the company continues to be under a standstill period till December 2018 and expects to complete the SDR process as per applicable guidelines.” In June this year, debt-laden RCom received a breather as lenders agreed to a debt restructuring plan under which RCom got a ‘standstill’ period of seven months to sell assets and repay debt worth Rs 45,000 crore.
Under RBI norms, bankers are allowed to sell the 51 per cent equity in two tranches of 26 per cent and 25 per cent, respectively after locating a buyer. “Shareholders of the company at the AGM held on September 26, 2017 have already approved issuance of equity shares to lenders by conversion of loans,” RCom said.
However, RCom said the board at its meeting held in Mumbai reviewed the ongoing strategic transformation programme and considered alternate plans for debt reduction. “The board decided that RCom will evaluate an alternate plan for its mobile business, through optimisation of its spectrum portfolio and adoption of a 4G focused mobile strategy,” it said.
“RCom already has the unique advantage of capital light access to India’s most extensive world class nationwide 4G mobile network through spectrum sharing and ICR agreements with Reliance Jio,” it said. The combination of the mobile business of Sistema Shyam Teleservices Ltd (SSTL) into RCom is also expected to be completed this month. The addition of SSTL’s valuable spectrum holdings in the 800-850 MHz band will strengthen RCom’s spectrum portfolio by 30 Mhz, and extend the company’s spectrum validity period in 8 important circles in the country till the year 2033 i.e. for another 16 years.
The company has spectrum across 800/900/1800/2100 Mhz spectrum bands aggregating 200 Mhz, valued at over Rs 19,000 crore for the balance of validity period, based on last auction pricing. “The company will evaluate opportunities for monetisation of the same through trading and sharing arrangements,” RCom said.
RCom said it has made good progress in its monetisation plans for prime real estate assets, including at Dhirubhai Ambani Knowledge City, Navi Mumbai admeasuring nearly 125 acres, and prime property near Connaught Place, New Delhi admeasuring nearly 4 acres. “Indications of interest from leading developers, and independent third party valuations, have established significantly higher present value monetisation potential of Rs 10,000 crore for the DAKC Complex alone,” RCom said
The company is engaged with leading global and domestic players, and expects to finalise developments agreements through an open and transparent process over the next few months, it said.