Blow to RCom as lifeline deal with Aircel collapses

Anil Ambani company to sell spectrum to ease debt burden

A merger between Reliance Communications (RCom) and Aircel, owned by Maxis of Malaysia, has collapsed on account of delays in getting approvals from courts and other authorities like the department of telecom.

RCom and Aircel had signed binding agreements in September last year for the merger of the former’s mobile business with the latter.

But with the Supreme Court still hearing a 2005 case on the acquisition of Aircel by Maxis, the Department of Telecom has refused to give its permission for the merger.

Besides, with creditors including Ericsson and China Development Bank objecting to the merger at the National Corporate Law Tribunal (NCLT), the fate of the merger is sealed.

In a statement, RCom said legal and regulatory uncertainties, and various interventions by vested interests had caused delays in getting approvals for the merger.

“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. As a result of the various factors aforesaid, the merger agreement has lapsed. The board approved the same,” the company said.

The company said with the merger of Shyam Sistema, its spectrum holding in the 800-850 megahertz (MHz) band would strengthen its portfolio by 30 Mhz, and extend the company’s spectrum validity period in eight important circles in the country till 2033. 

Besides, the company has spectrum across the 800/900/1,800/2,100 Mhz spectrum bands, aggregating 200 Mhz, valued at more than Rs 19,000 crore for the balance of the validity period, based on the last auction pricing. 

The company will evaluate opportunities for monetising spectrum through trading and sharing arrangements. 

RCom said the board would evaluate an alternative plan for its mobile business through optimising its spectrum portfolio and adopting a 4G-focused mobile strategy. 

The company would also sell real estate worth Rs 10,000 crore, it said.

In March this year, the company’s loans were more than Rs 45,733 crore. 

It has signed a deal with Indian banks, expecting to complete the strategic debt restructuring (SDR), under which the lenders had agreed to convert part of their loans into equity. 

According to its earlier plan, the company was to hive off its wireless telephony business, which was to be merged with Aircel, and that would have reduced its debt by Rs 14,000 crore. 

Also, the company was to sell its 51 per cent stake in its telecom tower business to Brookfield at Rs 11,000 crore. 

In a news conference in June this year, Chairman Anil Ambani had said the company would be out of SDR much before December, the deadline. 

But with the company failing to complete both transactions, the banks will have to make huge provisions for the stressed asset. 

Some lenders had treated the account as a special mention account.

The crisis for RCom was triggered by the launch of Reliance Jio, which offered free voice and data services for six months, leading to an industry-wise financial haemorrhage. 

“The only way you can compete with a free service is by offering a free service,” Ambani had said and added the industry’s financial metrics had deteriorated due to competition and high spectrum fees.

Besides, the three big players — Vodafone, Idea, and Bharti Airtel — are also facing competition from Jio, with Vodafone and Idea merging their operations. 

With the transactions not completed in the above timeframe, the lenders would exercise their right to convert their debt into equity in accordance with the SDR guidelines.

Crossed wires

September 2016:  Aircel, RCom announce merger

December 2016:  Brookfield agrees to buy towers for Rs 11,000 crore

June 2017: Lenders agree SDR process for RCom, to convert loans into equity

September 2017:  Ericsson moves NCLT against RCom to recover Rs 1,154 crore

September 2017:  Aircel, RCom call off merger