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Rel Comm, Aircel to merge to create India’s third-largest telco

In the biggest consolidation deal in India’s telecom sector, Reliance Communications and Aircel today announced the merger of their wireless operations to create a combined entity with assets worth Rs 65,000 crore.

RCom and Maxis Communications Berhad (MCB) hold 50 percent each in the merged entity with equal representation on the board and committees.

The transaction will reduce RCom’s debt by Rs 20,000 crore (USD 3 billion), while Aircel’s debt would go down by Rs 4,000 crore (USD 600 million) on closing in 2017, the two companies said.

The merger will create India’s third largest telecom operator by customer base and fourth largest by revenues. The merged entity will have the second-largest spectrum holding among all operators, aggregating 448 MHz across 850, 900, 1800 and 2100 MHz bands.

The entity will have assets of Rs 65,000 crore (USD 9.7 billion) and net worth of Rs 35,000 crore (USD 5.2 billion).

“Together with our partners, MCB, we are delighted to have taken the lead in consolidation of the Indian telecom sector, first, with RCom’s acquisition of the wireless business of SSTL (Sistema/MTS), and now, with the combination of our business with Aircel in a 50:50 joint venture with MCB,” Reliance Group Chairman Anil Ambani said.

This combination is expected to create substantial long term value for shareholders of both, RCom and MCB, given the benefits of the wide-ranging spectrum portfolio and significant revenue and cost synergies, he added.

“This deal further reinforces MCB’s commitment to India. Since acquiring Aircel in 2006, MCB has invested in excess of Rs 35,000 crore (USD 5.2 billion) into Aircel, making this one of the largest foreign investments into India, not only in the telecom industry but across all sectors,” MCB said.

RCom will continue to own and operate its high growth businesses in the domestic and global enterprise space, data centres, optic fibre and related telecom infrastructure, besides owning real estate.

The move is a step in the right direction, former Airtel India CEO Sanjay Kapoor told CNBC-TV18, adding it is critical that enough capital is invested in the merged business so it can sustain the data transformation war that is likely to ensue between deep-pocketed businesses in the near future.

The deal is unlikely to bring much relief to the debt problems of Reliance Communications and even after the deal the combined entity could still remain cash-strapped, says market expert Prakash Diwan.  It could be at least 3-5 years before investors can see a really leaner entity, he adds.

SP Tulsian of points the sale of Reliance Communication’s tower business and the valuation at which it is sold will also remain key factors to watch out for.  

Nitin Soni of Fitch Ratings notes the transaction will be neutral to credit negative for Reliance Communications.

With inputs from PTI