RCom cancels merger with Aircel, says it was mutual
Due to the disruption caused by Jio in the already financially strained telecom sector, some players decided to merge in order to survive. Therefore, two mergers were on the cards. First was the Vodafone and Idea Cellular merger and the second was a merger between Anil Ambani-owned RCom and Aircel. Now, the latter has been called off. Here's more.
The merged entity of RCom and Aircel was decided to be named Aircom. RCom was supposed to hold 50% stake in the new company. Once merged, Aircom would have had a combined subscriber base of 190 million. Reportedly, the merged entity's net worth would have been Rs. 35,000 crore with a cumulative debt of Rs. 28,000 crore, in which both companies were to contribute equally.
Reliance Communications (RCom) has now said, "Merger agreements with Aircel allowed to lapse by mutual consent." The reason being "inordinate delays caused by legal and regulatory uncertainties, various interventions by vested interests, policy directives impacting bank financing for telecom and changed industry dynamics," stated RCom. This merger was critical as this, along with a proposed sale, would've brought down RCom's humongous debt by 60%.
RCom said it'll now mull on alternative routes for its telecom business by optimizing its spectrum portfolio and focusing more on 4G. The firm believes that a proper monetization of its tower and fiber assets, the sale of real estate and the optimization of its spectrum assets would garner Rs. 25,000 crore, which will then get directed towards reducing its Rs. 42,000 crore debt.
In the September AGM of RCom, Anil Ambani had said that the telecom firm was going through troubled times because of regulatory, legal and corporate rivalries. However, it'll not bow down, as a merger and stake sale were on the cards, Ambani had said. This would've cumulatively solved the huge debt problem that the firm was facing and made sure that it remained solvent.
In the AGM, Ambani tried to calm down the spooked shareholders by saying that firm had "multiple backup options" to revive itself and more clarity, on its future course, will be provided by March 2018. He also said that the entire sector was in duress as financial institutions have stopped lending the capital-intensive sector, which needs capital expenditure of Rs. 100,000 crore per year.
The proposed merger did face several hiccups. Three of its main lenders had refused the petition of this merger. However, later, China Development Bank, Standard Chartered Bank, and HSBC gave their consent. Then trouble brewed again, when RCom's creditors, Indus Towers, Ericsson, Department of Telecommunications, Bharti Infratel and GTL Infrastructure's Chennai Network Infrastructure, objected to it, saying their dues should be cleared first.
RCom's senior counsel had mentioned earlier that this merger could save assets worth Rs. 100,000 crore from being obsolete along with benefiting 90 million consumers, 16,000 retail shareholders and 100,000 employees. The telecom player is currently going through a strategic debt restructuring and is in talks with the banks for balance debt post de-leveraging. Its SDR period will continue till December end.
Meanwhile, Canadian investor Brookfield may now try to revive the pending acquisition of RCom's towers. However, it will be done at a revised price. A person in the know, said that the valuation of these towers will have to be brought down considerably for the acquisition to go through, as its earlier valuation was riding high on the Aircel and RCom merger.