Reliance Communications-Sistema deal may cost $600 million extra

KOLKATA: The spectrum trading rules could put a spanner in the ongoing, exclusive merger talks between Anil Ambani-led Reliance Communications (RCom) and Russia's Sistema JSFC as the deal cost may swell by an extra $600 million (roughly Rs 3,980 crore), two senior executives aware of the matter said.

This is since the rules approved by the government on Wednesday say that for 800 MHz airwaves acquired in the March 13 auctions, trading will be allowed only if the differential of the price discovered in the latest auction (March 2015) and the March 2013 price on the balance period is paid to the government.

The government's logic is that the airwaves given in 2013 were non-contiguous, or non-continuous, and those offered in March 2015 were continuous and thereby, of a higher value as they could be used for 4G services. Hence Sistema would need to make the differential payment to make their airwaves continuous. "The government has clarified that Sistema will have to pay the difference (about Rs 3000 cr) in market price of 800MHz and the price it paid in March-13 to be eligible for trading, which can be a setback for the potential merger (with RCom)," brokerage CLSA said in a note.

Sistema Shyam said it is too early to talk about the impact to the deal talks as the "discussions (with RCom) are indicative and non-binding in nature, and any merger would remain subject to due diligence, definitive documentation and approvals", as needed.

"Regarding the issue relating to payout of any kind on account of spectrum contiguity, the matter is sub-judice with (telecom tribunal) TDSAT since February 2015 and the company is hopeful of a favourable judgment in this regard," said a Sistema Shyam spokesman.

RCom did not immediately respond to an email seeking comment.

Sistema Shyam had paid about Rs 3,639 crore to acquire 800 MHz spectrum in the March 2013 auction in eight circles — Delhi, Gujarat, UP-West, Kolkata, West Bengal, Kerala, Tamil Nadu and Karnataka. These airwaves are valid till 2033. Its contention is that it has already paid the market price in 2013, but was allotted non-continuous airwaves, which wasn't its fault and that it can't be expected to again pay for the same airwaves.

Reliance Communications (RCOM)