RCom board to okay MTS merger process on Monday

As part of the deal, Sistema would get a stake of 8-10 per cent in the merged entity, while RCom would hold controlling stake

Reliance Communications (RCom) has informed stock exchanges that at a board meeting on Monday, it would consider "a scheme of arrangement for the de-merger of the telecom business undertaking of Sistema Shyam Teleservices Ltd (SSTL) into the company".

RCom has been in advanced talks with SSTL to merge the Indian operations of Sistema Shyam with itself. At RCom's 11th annual general meeting, Reliance Group chief Anil Ambani had said: "The discussions with SSTL for a merger of its Indian operations into RCom through a stock swap are at an advanced stage."

In India, SSTL provides data services under the MTS brand to 10 million subscribers across 450 towns. The merger, if approved, would end negotiations between the two entities in this regard, which started in June this year.

The deal would be beneficial for RCom, as it would extend the validity of spectrum by 12 years. The merger would be through a stock swap. As part of the swap, Sistema would get a stake of 8-10 per cent in the merged entity, while RCom would hold controlling stake. The combined entity will have about 120 million subscribers, making it the fourth-largest telecom operator in the country, after Airtel, Vodafone and Idea.

The deal would be a non-cash one, as both companies are loaded with debt. RCom's net debt widened to Rs 38,595 crore in the July quarter from Rs 36,725 crore in March 2015. To cut debt, the company is in talks with several entities to sell stake in its tower units.

It isn't clear whether RCom will acquire both the assets and liabilities of MTS or the assets alone.

"The proposed merger will be highly value-accretive for RCom, as it will, in eight important circles, extend the validity of the 850-MHz spectrum by a significantly long period of 12 years, all the way up to 2033," Anil Ambani had said at the annual general meeting on September 30.

RCom is eyeing the 850-MHz spectrum owned by SSTL, as some its 800-MHz spectrum licences will expire in 2021. The acquisition of new spectrum licences will give it more teeth in bargaining with Reliance Jio, which wants to use all licences held by RCom in the 800-850 MHz band.

Currently, MTS India is operational in nine circles -Delhi, Gujarat, Karnataka, Kerala, Kolkata, Rajasthan, Tamil Nadu, Uttar Pradesh (West) and West Bengal - , while RCom has operations across 22 circles. MTS, for which Rajasthan, West Bengal and Karnataka are the three largest circles, is a significant entity in mobile internet, as it derives more than half its revenue from non-voice operations.