Reliance Jio to buy RCom's wireless assets in $3.75 billion deal: sources

By Devidutta Tripathy and Promit Mukherjee

MUMBAI (Reuters) - Debt-laden Reliance Communications has signed a deal to sell its wireless assets to Reliance Jio Infocomm for nearly 240 billion rupees ($3.75 billion), two sources familiar with the matter told Reuters on Friday.

The two companies had announced late on Thursday that Reliance Communications, backed by businessman Anil Ambani, would sell all its spectrum, tower, fibre optic and other telecom infrastructure assets to Jio, which is owned by Reliance Industries and is controlled by Anil Ambani's elder brother Mukesh Ambani, India's richest person.

They firms did not give the value of the deal. Jio and Reliance Communications, or RCom as the company is known as, did not respond to messages seeking comment on the value of the deal.

The sale, if finalised, would mark a big step in RCom's quest to cut down debt, which had sent its shares to record lows earlier this year and led creditors such as China Development Bank (CDB) to start insolvency proceedings over missed payments. RCom had a net debt of 450 billion rupees at the end of October, putting it among India's most indebted companies.

CDB told Reuters late on Thursday it is in talks with RCom.

RCom shares rose as much as 29.9 percent on Friday while Reliance Industries rose as much as 0.9 percent.

The sale would also mark the return of the telecom operations back into the fold of Reliance Industries, which forayed into telecoms in 2002, spearheaded by the elder Ambani, under the name of Reliance Infocomm Ltd.

A feud between the two brothers in 2005 led to the split of Reliance Industries, with Mukesh Ambani keeping the cash cow oil and gas business and Anil Ambani walking away with telecoms and power.

But Mukesh Ambani has re-entered the telecoms space with the launch of Jio in September 2016, upending the sector with cut-price data and free voice service and pushing RCom into a debt spiral.

Analysts said the deal would serve both brothers, allowing Jio to expand its footprint in India's cutthroat telecom sector, while allowing RCom to pare debt.

On Tuesday, Anil Ambani had said the wireless provider was seeking to slash debt by 390 billion rupees, including through the sale of assets, sparking a rally in RCom shares which have more than doubled since the plan was unveiled.

Morgan Stanley analysts said the deal would allow Jio to further expand into India's telecom space, though it would also add to its debt.

"Acquisition of RCom's telecom infrastructure should bring synergies and lower costs while raising clarity on growth capex. The deal could potentially raise balance sheet leverage by 10-12 percent near term," Morgan Stanley wrote in a note on Friday.

Jio's entry has hurt profits at competitors such as Bharti Airtel Ltd, India's largest phone carrier, and the India unit of Vodafone Plc and sparked a wave of consolidation in the sector.

Reliance Jio is India's fastest growing telecoms company with a subscriber base of close to 140 million. Through the deal, Jio gets access to four bands of spectrum and 43,000 telecom towers and a countrywide fibre optic network.

For RCom, the deal could mark a big step in its months-long effort to reduce debt as it retreats from the consumer telecom space to focus on its enterprise business.

Under the plan unveiled on Tuesday, RCom has said it was aiming to raise about 250 billion rupees through the sale of some of its assets, as well as shift 100 billion rupees of debt into a special purpose vehicle. It also hopes to receive investments from private equity players.

($1 = 64.0700 Indian rupees)

(Reporting by Devidutta Tripathy and Promit Mukherjee; Editing by Rafael Nam and Muralikumar Anantharaman)