Reliance Communications-Aircel merger may run into debt hurdle

New Delhi: Reliance Communications Ltd’s (R-Com’s) plan to combine its wireless business with smaller rival Aircel Ltd to create a new entity is unlikely to be concluded within the 90 days that the telcos gave themselves to finalize the merger, company officials and analysts said

The merger is subject to the condition that the two parties each reduce their debt to less than Rs.10,000 crore. That condition is unlikely to be met unless R-Com manages to sell its tower assets and Aircel sells some of its spectrum.

On 15 January, Mint reported that R-Com had extended by two weeks the deadline for exclusive talks with Tillman Global Holdings Llc. and TPG Asia Inc. to conclude the sale of its telecom towers and optic fibre assets—a deal that may be worth as much as Rs.30,000 crore.

“The tower deal has been delayed by more than a month now. It does look like it will happen soon but there is still no word on the Aircel part of it. Until that happens, there can be no deal. Most likely those talks (between Aircel and R-Com) will get extended till after the spectrum auction,” said an analyst who declined to be named.

The government is expected to auction spectrum across all available bands later this year, once the telecom regulator’s January recommendations on reserve price and quantity to be auctioned is approved by the cabinet.

A person familiar with discussions related to R-Com’s tower transaction said the deal was being delayed because the top management of the group was busy with a number of deals to reduce debt across the group.

Spokespersons for Aircel and R-Com declined comment.

On 22 December, R-Com said it was entering into 90-day exclusive talks with Maxis Communications Bhd and Sindya Securities and Investments Pvt. Ltd, the shareholders of Aircel, to consider the combination of the wireless business of R-Com and Aircel.

R-Com’s debt stood at around Rs.39,000 crore at the end of the December quarter while Aircel’s debt was estimated at Rs.20,000 crore.

To proceed with the merger, Aircel may have to sell some of its spectrum—ideally in the 2,300 megahertz (MHz) band that it bought in the 2010 spectrum auction. Aircel paid Rs.3,438 crore for the spectrum in seven circles and an additional Rs.6,500 crore for 2,100Mhz spectrum in 13 circles.

However, Bharti Airtel Ltd, the most likely candidate to buy the airwaves, may wait till the next auction to conclude such a transaction as government rules restrict a single company from owning more than 25% of the spectrum available in a circle.

Airtel has reached the limit in at least Odisha and Andhra Pradesh after buying Qualcomm’s 4G airwaves in four circles.

“We keep receiving proposals from various quarters. We review them from time to time. As and when any proposal gets finalized we make appropriate disclosures,” an Airtel spokesperson said.

Aircel’s airwaves in eight circles would give Airtel a 4G footprint across 18 circles, almost on a par with Mukesh Ambani-owned Reliance Jio Infocomm Ltd, the only operator to hold 4G airwaves across all 22 circles. Airtel has already rolled out its 4G services in 15 circles so far while Aircel has started services in six of its eight 4G circles.

The Aircel-R-Com merger will likely create India’s fourth largest telco, after Airtel, Vodafone India Ltd and Idea Cellular Ltd. R-Com is in the process of completing the acquisition of Shyam Sistema TeleServices Ltd. The Anil Ambani-controlled company is also selling some of its real estate assets in Delhi and Mumbai to cut debt.

“If they buy the spectrum from Aircel, they could get it cheaper than from the auction, but there are spectrum limits on how much they can buy. The spectrum (from Aircel) will only be valid for another 14 years, but the new spectrum will be available for 20. But Aircel and R-Com need this merger to happen as it is unlikely that they will survive once Reliance Jio launches its services and the competition in the 4G market becomes like the tariff war (in 2009 when tariffs went to below sub one paisa per second levels),” a Mumbai based analyst with a multinational brokerage said.