R-Com, Aircel extend merger talks by 2 months

New Delhi: Reliance Communications (R-Com) Ltd and shareholders of Aircel Ltd have extended the exclusivity period to conclude their ongoing merger talks.

“Based on the good progress made so far, it (R-Com) has extended the exclusivity period with Maxis Communications Berhad and Sindya Securities and Investments Pvt. Ltd, the shareholders of Aircel Ltd, by 60 days to 22 May 2016...,” the statement said.

On 22 December, the two companies announced plans for a merger and started exclusive talks for a period of 90 days.

The two companies plan to create a new entity that will contain R-Com’s communications business and Aircel’s operations in India, including all the spectrum held by the two companies. R-Com’s enterprise and data centre business will be retained as an Anil Ambani Group company. The companies will also transfer around ₹ 14,000 crore of their existing debt into the new entity which is expected to be listed a year after becoming fully operational—estimated to be two quarters after finalization of the deal.

R-Com proposes to have 50% share in the new entity, in which 10% will be owned by Sistema Shyam TeleServices Ltd. The new entity is expected to be a strong number 3 or 4 in the market with around 200 million subscribers and around ₹ 25,000 crore in revenue and a debt-Ebitda margin of around 4x.

Aircel is currently 74% owned by Malaysia’s Maxis Communications, with Sindhya Securities and Investments holding the rest. This is the second telecom deal that R-Com is in the process of finalizing. The one it announced for the sale of its telecom towers to a consortium of private equity majors with Tillman Global Holdings LLC and TPG Asia, Inc., has been ongoing, well beyond its initial conclusion date of 15 January.

The delay in the tower deal, analysts say, is having an adverse effect on the R-Com share price. The approximately 38% share price decline in the past three months has been driven by slower progress on tower monetization, Rajiv Sharma, a telecom analyst with HSBC Securities and Capital Markets (India) Pvt. Ltd, said in a 21 March report.

“That said two recent developments may have an adverse bearing on tower valuations,” Sharma said. “Firstly, with the shutdown of 900Mhz spectrum operations in 5 circles, total base stations for R-Com came down by approximately 12%. In addition, R-Com has entered into active infrastructure sharing with 4G entrant (Reliance) Jio, which allows R-Com to offer 4G services without investing much capex. R-Com’s active sharing limits the upside for the buyer of the tower assets as demand by R-Com (anchor tenant) for additional towers in the near to medium term may not be much.”

These developments have a negative impact on tower valuations, Sharma said in the report. He expects the sale proceeds from R-Com’s tower assets to come in at ₹ 12,200 crore, down from the earlier estimate of ₹ 14,400 crore.

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