Reliance Communications clears barrier in Sistema merger

The deal also does not have any cash outgo for RCom. Sistema will not have any board members.
Clearing a major hurdle in its proposed merger with Sistema, Reliance Communications (RCom) has provided a bank guarantee of Rs 390 crore to the government for transfer of spectrum in the 800 MHz band to it.

The department of telecommunications (DoT) is expected to give a final green signal to the merger this week. Sources said the bank guarantee was provided to RCom by YES Bank.

Under the deal, Sistema Shyam Teleservices (SSTL) will merge into RCom and get a 10 per cent stake in the company in return, valued at Rs 650 crore in current prices. RCom will have the largest amount of spectrum in the country in the 850 MHz band, valuable for launch of fourth-generation (4G LTE) technology services. It will also get a little over four million customers.

The deal also does not have any cash outgo for RCom. Sistema will not have any board members.

The merger agreement was signed in September 2016. It got delayed because RCom and the ADA Group, of which it is a part, were under major pressure to restructure a burgeoning debt burden, of a little over Rs 40,000 crore.

RCom has been given seven months by its lenders (till December) to reduce this. It has put forth a plan to sell various assets.

These include its undersea cable business and tower infrastructure, beside monetisation of its real estate and pushing through a merger with Aircel by setting up a separate company.

A spokesperson of RCom declined to comment on the issue.

Under the deal with SSTL, RCom will acquire 850 MHz spectrum in nine of the country’s 22 telecom circles (of 3.75 MHz each) — Delhi, Gujarat, Tamil Nadu, Karnataka, Kerala, UP (West), Kolkata, West Bengal and Rajasthan. By previous auctions, this is valued at Rs 7,500 crore.

However as Sistema had bought this spectrum in 2013, RCom will have to fork out around Rs 400 crore annually (including interest) in instalments for 10 years, starting February 2016.

This could change if the government provides sops to the industry on extending the time for payment, as well as reducing the interest rates. 
The spectrum it will acquire is valid for 18 years, till 2033 (excluding Rajasthan’s, till 2018).

This will also help RCom in extending the validity of its own spectrum, due for renewal in 2020 in these circles.

Spectrum Scenario

* Sistema Shyam Teleservices (SSTL) will merge into RCom and get a 10% stake in the company in return, valued at Rs 650 cr in current prices

 
* RCom will have the largest amount of spectrum in the country in the 850 MHz band, valuable for launch of fourth-generation technology services

 
* Under the deal with SSTL, RCom will acquire 850 MHz spectrum in nine of the country’s 22 telecom circles 

 
* The merger agreement was signed in September 2016


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