Anil Ambani-led Reliance Communications Ltd (RCom) has called off their merger with Aircel Ltd, after their pact with Maxis Group lapsed, citing regulatory delays and opposition from the creditors on how they will repay the huge debt.
RCom is looking to sell off their part of real estate assets and will share spectrum to pay off a part of the debt, the company confirmed in a filing to the stock exchanges last day.
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Why Did The Merger Fail?
Aircel is owned by Maxis Group which is a Malaysia-based company. The deal collapsed due to long delays in getting approvals from courts and other requisite authorities like the the department of telecom (DoT) among others. RCom and Aircel signed multiple agreements last year to merge their mobile businesses. Majority of the creditors, which includes big names like Ericsson and China Development Bank (CDB) had objected to the merger at the National Corporate Law Tribunal (NCLT).
How The Merger Could Have Helped?
The merger between Maxis Group (Aircel) and Reliance Communications (RCom) would have helped RCom to sell off the telecom tower assets which could have pared Reliance a Rs. 45,000 crore debt. On the other hand, due to stiff pressure from Reliance Jio, they have already been sidelined. Both the companies are going through one of their worst phases, and the merger would have helped both equally.
Merger Lapsed By Mutual Consent
The merger between Aircel and RCom was lapsed by mutual consent. RCom attributed that the decision was taken mutually, and due to inordinate delays caused by the courts, regulatory uncertainties and various interventions. It impacted the bank financing for telecom and hence, the merger has been called off.
How Will RCom Repay Their Loan Now?
The lenders of RCom have invoked Strategic Debt Restructuring (SDR) for the debt ridden telecom operator back in June. With the help of SDR, the creditors will convert the firm’s given debt into the form of equity and this will be further taken over by the management of the defaulting companies. However, banks will postpone debt-servicing payments till December as they have presented the new restructuring plan. Banks will not convert any debt into equity in the standstill period, and it will continue till December 2018.
What’s Next For RCom?
RCom will probably sell off 51% stake of their mobile tower arm to the Canada-based Brookfield Infrastructure. The Rs. 11,000 crore deal will reduce the debt to a major extent. In March, the company’s loans were more than Rs. 45,733 crores. RCom is also expecting monetization of the tower and fiber assets and real estate (which includes 125 acres at Dhirubhai Ambani Knowledge City in Navi Mumbai and 4 acres in Delhi to raise over to Rs. 10,000 crore) that will generate a revenue of around Rs. 25,000 crore.
Jio To Blame?
In July, Anil Ambani-led Reliance Communications directly blamed Reliance Jio (led by his own brother Mukesh Ambani) for the financial stress in the telecom industry. They made a loss of around Rs. 1800 crores in the last fiscal year, compared to their peak profit of Rs. 4800 crores in March 2009. The net sales fell by over 35 per cent to Rs. 8823 crore in the same period.
New Merger On The Way
Reliance Communications is getting into a new merger with mobile business of Sistema Shyam Teleservices Ltd (SSTL), and it will be completed by the end of this month. This merger will bring the company valuable spectrum holdings in the 800-850 MHz band. This will help them to stiffen up their spectrum portfolio by 30 Mhz, and enable it to expand its spectrum in 8 major circles around the country, while extending the spectrum validity period by another 16 years to 2033.
To Bring A World Class Nationwide 4G Mobile Network
RCom is working on an alternative plan to shore up their mobile business by optimizing the spectrum portfolio and adoption of a more 4G focused mobile strategy. RCom is aiming to create India’s most extensive world-class nationwide 4G mobile network through spectrum and ICR (intra-circle roaming).
Focus On Domestic and Overseas B2B Business
RCom is now mainly focusing on domestic and overseas B2B businesses to generate equal revenues from both the operations. As a part of the ongoing transformation, this will enhance value for all its stakeholders. The RCom board has reaffirmed that the capital-light B2B businesses will give sustained and predictable revenues and profits, and has an immense growth potential.
RCom – Aircel Merger: Story Timeline
The deal was signed last year in September, and has been called off exactly twelve months later.
- September 2016: Aircel and RCom announce merger.
- December 2016: Canada-based Brookfield agrees to buy towers for Rs. 11,000 crore.
- June 2017: Lenders agree Strategic Debt Restructuring (SDR) process for RCom, to convert loans into equity. Banks postpone repayment.
- September 2017: Ericsson and China Development Bank (CDB) moves NCLT against RCom to recover Rs. 1,154 crore debt.
- September 2017: Aircel and RCom mutually call off merger.