RCom stock tanks 11% on Aircel deal collapse

Share price of other telcos feel the heat, fell 1-3%

The Reliance Communications (RCom) stock on Tuesday declined nearly 11 per cent, after the merger of its mobile business with Aircel was called off on Sunday, citing legal and regulatory hurdles. Markets were closed on Monday on account of Gandhi Jayanti.
 
On the BSE, the stock hit a record low of Rs 16.75 during the day before closing at Rs 17.10, its lowest closing since the stock listed in July 2006, following the split of businesses between Mukesh Ambani and Anil Ambani. At Rs 17.10, the stock is down 98 per cent from its all-time high of over Rs 800 in January 2008, prior to the global financial crisis.
 
The news had a rub-off on the stocks of other telecom providers as well. Bharti Airtel’s shares dropped from its previous closing of Rs 388.65 to an intra-day low of Rs 384 on Tuesday, before closing at Rs 385.65, down 0.77 per cent. The Idea Cellular stock fell 1.9 per cent to Rs 75.90, from its previous close of Rs 77.35, while Tata Teleservices (Maharashtra) fell 3.4 per cent to close at Rs 5.76.
 
RCom’s merger with Aircel fell through after multiple delays from shareholders and regulatory bodies in providing clearance. The company, which owes nearly Rs 49,000 crore to lenders (on a consolidated basis), has been further stressed with Ericsson’s India arm filing an insolvency petition to recover Rs 1,150 crore of its dues.
 

Under the deal with Aircel, RCom was to transfer Rs 20,000 crore of its Rs 47,700-crore debt (gearing at 10 times Ebitda or earnings before interest, tax, depreciation and amortisation) to the joint venture,” said CLSA in a recent report.
 
In order to meet its obligations, RCom is now looking at other options.
 
The company has over Rs 19,000 crore worth of spectrum, including 4G, besides land parcels and telecom towers, which it now hopes to monetise to repay the debt. The proposed sale of its tower business to Canada-based Brookfield may also come under stress following the fallout with Aircel, according to experts.
 
“The board has decided that RCom will evaluate an alternative plan for its mobile business through optimisation of its spectrum portfolio and adoption of a 4G-focused mobile strategy,” the company said in a statement on Sunday. It further noted the proposed merger had been allowed to lapse by mutual consent following inordinate delays caused by legal and regulatory uncertainties and interventions by various vested interests.
 
During the Annual General Meeting last week, ADAG group’s Chairman Anil Ambani had stated that only RCom’s wireless business remained in trouble due to “creative destruction” in the sector. The telecom sector suffered huge losses following the launch of Mukesh Ambani’s Reliance Jio, which has disrupted the market with free-calling and cheap data services.