RCom's lifeline deal with Aircel called off

Reliance Communications (RCom) has called off its merger with Aircel, owned by Maxis of Malaysia, following legal and regulatory hurdles, putting a question mark on the company’s promise to its lenders to reduce its debt burden of Rs 45,733 crore by the end of December.

With the deal falling through, the lenders, led by a consortium of banks, now have the option of converting their loans into equity by the end of the year and take up to a 51 per cent stake in the company. 

However, RCom has offered an alternative plan to reduce its debt by around Rs 28,500 crore. This includes selling its tower business (Rs 11,000 crore), sale of fibre (around Rs 7,500 crore), monetising real estate (Rs 1,000 crore), and also selling or trading its 2G and 3G spectrum. 

It expects that the alternative plan will be completed by December next year, the deadline for strategic debt restructuring (SDR) to be completed. Earlier it had promised to reduce its debt by more than Rs 21,000 crore by December this year.

According to sources, the ball is in the court of the lenders, which might choose not to convert their loans into equity and wait for another 14 months if they are convinced that the new plan will yield results. 

However, many point out that with real estate prices remaining subdued and the fact that the company has been unsuccessfully trying for many years to sell its real estate, and with most telcos having enough spectrum available, monetisation might not be easy. 

The move will also require Aircel to rework its plan to reduce debt, which was pegged at around Rs 18,000 crore and was partly adjusted after it sold its 2100 MHz spectrum to Airtel for Rs 3,000 crore. 

In an internal email to employees, Aircel Chief Executive Officer Kaizad Heerjee has said that the company will work on a revised road map that reckons on the difficult market conditions. He told them to be focused on winning in the market place.

According to an earlier plan, the two companies were to merge and form an entity called Aircom, with each having 50 per cent. 

Both companies were to transfer Rs 14,000 crore of their debt to the new company, apart from some deferred liabilities, essentially the payment of its spectrum in instalments of Rs 7,000 crore over eight years. RCom and Aircel had signed binding agreements in September last year for the merger of their mobile businesses.

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

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

The merged entity would have had a 14.76 per cent market share, which is close to Idea’s 16.35 per cent, and controlled a 15.3 per cent share of the spectrum in the country, making it easier to take on competition. With the launch of Jio, smaller players like RCom have seen a substantial slide in their market share.

In a statement, RCom said legal and regulatory uncertainties and interventions of vested interests had caused delays in receiving relevant approvals.

“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 its spectrum validity period in eight important circles till 2033.

Besides, the company has spectrum in 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.

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.

With tower and real estate monetisation under the earlier plan, it had planned to reduce its debt to as low as Rs 11,000 crore, bringing it down to only three times its earnings before interest, taxation, depreciation and amortisation (Ebitda), a manageable number, instead of more than 4.6 times its Ebitda. 

Even if real estate monetisation did not happen, its debt would be around four times its earnings. As part of that plan, the company was to sell its 51 per cent stake in its telecom tower business to Brookfield at Rs 11,000 crore.

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