R-Com, Aircel merger by June-end
The merged entity, which will be India’s third largest telecom firm by subscribers, will save about Rs2,500 crore a year through synergies between the two operations
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Mumbai: Telecom firms Reliance Communications Ltd (R-Com) and Aircel Ltd are likely to complete their merger by the end of June, a top Reliance Group executive has said.
The executive, who asked to be not named, said the merged entity, which will be India’s third largest telecom firm by subscribers, will save about Rs.2,500 crore a year through synergies between the two operations. The combined entity is expected to have Ebitda (earnings before interest, tax, depreciation and amortization) of Rs.5,000-6,000 crore in the next financial year with a revenue of Rs.25,000 crore.
The Reliance executive added a strategic investor will invest Rs.3,000 crore in the entity.
In December, R-Com entered into exclusive talks with Aircel for a potential merger, a month after it announced that it would buy the local unit of Russia’s Sistema JSFC.
As part of the deal, R-Com will spin off its mobile business and this will merge with the mobile business of the Maxis-owned Aircel; Both R-Com and Aircel will transfer Rs.14,000 crore each of their debt to the new entity.
R-Com has a total debt of around Rs.41,000 crore.
The Reliance executive said the new telecom firm, a 50:50 joint venture of R-Com and Aircel, will be unlisted and operate under a new brand name.
He added that the conclusion of R-Com-Aircel merger is critical for the former’s proposed Rs.30,000 crore tower deal.
On 4 December, R-Com had signed a preliminary but non-binding agreement with Tillman Global Holdings Llc and TPG Asia Inc. for the sale of its telecom towers and optic fibre assets. “The Aircel-R-Com merger will make the tower deal more attractive, considering the increased tenancies and new tower opportunities,” the executive added.
An industry expert was upbeat about the R-Com-Aircel merger.
“It is a sign of things to come. We expect further consolidation to defend market share as the market is expecting new disruptions and new entrants,” said Rohan Dhamija, partner and head of India and South Asia at consulting firm Analysys Mason. He said it will benefit both partners as long as the combined debt load can be managed.
Dhamija expects the enterprise value of the merged entity to be 20-40% more than the aggregate value of standalone entities of R-Com and Aircel, owing to the benefits of synergy.
“R-Com and Aircel will have synergy in terms of both revenue and cost. Revenue synergy will be attained primarily through increased market share and better quality and quantity of spectrum,” Dhamija said. He added that cost synergy will also come to play as 7%-11% operating expenditure will be shaved off if the integration goes well.
Last week, ratings agency Moody’s Investors Service, Inc. said R-Com continues to have a strained liquidity profile and the rating outlook for the fourth-largest mobile operator in India by the number of subscribers remains negative owing to delays in its plans to reduce debt. There is also an ongoing need to refinance upcoming debt maturities, it said. “R-Com has about $450 million in debt falling due in the quarter ending 30 June 2016, which includes a $350 million external commercial borrowing (ECB) facility at Reliance Infratel Ltd, which is guaranteed by R-Com and has a cross-default with other debt. Management is still in the process of renewing this facility with the banks and expects to complete the refinancing ahead of maturity. Failure in obtaining final renewal approvals from the banks will lead to imminent ratings downgrade, which would be more than one notch,” cautioned Moody’s.
Reliance Group companies have sued HT Media Ltd, Mint’s publisher, and nine others in the Bombay high court over a 2 October 2014 front-page story that they have disputed. HT Media is contesting the case.