Adithya Vikram
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- 13 Sep 2013
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MUMBAI: Anil Ambani led Reliance Communications Ltd (R-Com) and Aircel are in advance negotiations to finalise their much anticipated merger by this early next month, paving the way what would be the first in-market telecom merger of national scale in the country, said officials in the know.
The deadline for exclusive negotiations between both sides was extended for a month till June 22nd and officials are confident of ironing out the outstanding issues within the next 4 weeks. Sources say, both sides are currently finalising the various commercial and legal terms of engagement.
As per the terms, RCom will hive off its wireless business into a separate arm - special purpose vehicle - in the form of a slump sale, leaving behind the tower and overseas arms of the Anil Ambani company.
The arm in turn will get merged into the mobile business of Maxis-owned Aircel. Both partners will have joint 50:50 ownership of this new entity that will remain unlisted in the initial years and operate under a new brand name.
RCom and Aircel will each transfer Rs 14,000 crore of their debt into it. RCom has a gross debt of Rs 42,651 crore while it is Rs 23,436 crore for Aircel. Russia's Sistema will hold 10% in the listed RCom.
RCom's tower portfolio and its undersea cables arm Global Cloud XChange will be kept out of the ambit of the merger. Aircel has a gross debt of Rs 23,436 crore while it is Rs Rs 42,651 crore for RCom.
Once the synergies get fully panned out post merger, the plan is to bring on board another foreign investor within a year who will infuse $500 million (Rs 3350 crore at an exchange rate of Rs 67 to a dollar). One of the sources mentioned above said Sistema could further develop the partnership by also investing in this new entity, while another said preliminary feelers have gone out to a few US based investors. This however could not be independently verified.
"The merger of telecom assests of SSTL with Rcom is an independent process. The said process is on track which includes taking due legal and regulatory approvals from the relevant authorities. It is also significant to note that there is no legal right or commitment from the shareholders of SSTL to participate in RCOM's deal with Aircel," said the MTS spokesperson.
As per industry estimates, a 12% revenue market share could translate to an enterprise valuation of $6 billion for the merged company. However, analysts expect there is scope for it to go up by 40-50% in the next few years, once the operational synergies get fully optimised. Company officials however dispute the figures.
The merged entity is expecting approximately Rs 2,500 crore in cost savings annually through synergies between the two operations. Consultants Booz Allen and AT Kearney are helping both parties in the exercise. Investment bank Goldman Sachs is the advisor in the transaction.
RCom spokesperson was not available for comment. Aircel did not revert on mails and messages sent to them.
The merger should help the two improve revenue market share, deleverage balance sheets, optimise spectrum usage and streamline opex and capex synergies. For the last three years, the two have had infrastructure-sharing agreements. They can also leverage the 4G network of Reliance Jio, run by brother Mukesh Ambani, experts said. RCom and Jio are engaged in spectrum trading and sharing alliances.
One of the sources directly involved said, the combined entity -- which will be India's third largest telecom firm by subscribers -- 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. It is also expected to have 120 million active subscribers, even though company officials say the number will actually be higher at around 150-160 million along with a revenue market share of 6% each.
Last December, RCom 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 that operates under the MTS brand. In May, Gurdeep Singh, R-Com's chief of wireless business said that a final structure of amalgamation along with fresh capital expenditure plan will be issued in June.
"The marginal operations have to join forces to defend turf as deep pocket new entrants are set to disrupt the market. Additionally, in this cash guzzling, high capex game, where the big 3 are cornering lion's share of the market, one needs to streamline operating expenditure, said an analyst closely tracking the developments.
As per estimates of analysts of IIFL, RCom-Aircel-Sistema will have 20% of spectrum market share and will be in the top 3 by revenue market share in 13 out of 22 circles. Additionally, it will plug GSM coverage gaps in three out of five circles where RCOM failed to renew 900MHz spectrum.
Aircel has spectrum to offer 3G in 13 markets while RCom has it in 11 circles. But with Jio powering 4G services, the new entity will be able to offer broadband services without sinking in billions of dollars in network and spectrum.
TOWER SALE DELAYS During the 4Q earnings call this month, RCom officials gave a timeline to its divestment programme to analysts. They said the necessary regulatory approvals from DoT and High court for the RCom-Sistema deal is likely in two months. The Rs 30,000 crore tower sale is expected within 2 more months of the merger with Aircel.
But not everyone is convinced just as yet.
Ratings agency Moody's -- also in this month -- said its outlook towards RCom remained negative on the back of delays in its deleveraging plans. What is compounding their worries is the telco has about $450 million in debt falling due in the quarter ending 30 June 2016, and includes a $350 million ECB facility at Reliance Infratel which is guaranteed by RCom 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," said Nidhi Dhruv, vice-president - senior analyst, corporate finance group at Moody's Investors Service Singapore Pte. Ltd.
The delays in the tower sale is also straining the liquidity profile, feels Moody's. Last December RCom had announced a consortium of TPG and Tillman Global Holdings had made a non-binding agreement to buy its telecom towers. TPG subsequently withdrew from the negotiations. Once both the transactions are completed, RCom officials claim their debt will come down by as much as 80% from current levels.
Source:-
Anil Ambani-led RCOM and Aircel may complete -billion merger by July - The Economic Times
RCom and Aircel may finalize -billion merger by July - Times of India
India’s RCom, Aircel to close merger in July – report - Mobile World Live
http://www.indiainfoline.com/article/news-top-story/rcom-and-aircel-may-complete-merger-by-july-116061300011_1.html
The deadline for exclusive negotiations between both sides was extended for a month till June 22nd and officials are confident of ironing out the outstanding issues within the next 4 weeks. Sources say, both sides are currently finalising the various commercial and legal terms of engagement.
As per the terms, RCom will hive off its wireless business into a separate arm - special purpose vehicle - in the form of a slump sale, leaving behind the tower and overseas arms of the Anil Ambani company.
The arm in turn will get merged into the mobile business of Maxis-owned Aircel. Both partners will have joint 50:50 ownership of this new entity that will remain unlisted in the initial years and operate under a new brand name.
RCom and Aircel will each transfer Rs 14,000 crore of their debt into it. RCom has a gross debt of Rs 42,651 crore while it is Rs 23,436 crore for Aircel. Russia's Sistema will hold 10% in the listed RCom.
RCom's tower portfolio and its undersea cables arm Global Cloud XChange will be kept out of the ambit of the merger. Aircel has a gross debt of Rs 23,436 crore while it is Rs Rs 42,651 crore for RCom.
Once the synergies get fully panned out post merger, the plan is to bring on board another foreign investor within a year who will infuse $500 million (Rs 3350 crore at an exchange rate of Rs 67 to a dollar). One of the sources mentioned above said Sistema could further develop the partnership by also investing in this new entity, while another said preliminary feelers have gone out to a few US based investors. This however could not be independently verified.
"The merger of telecom assests of SSTL with Rcom is an independent process. The said process is on track which includes taking due legal and regulatory approvals from the relevant authorities. It is also significant to note that there is no legal right or commitment from the shareholders of SSTL to participate in RCOM's deal with Aircel," said the MTS spokesperson.
As per industry estimates, a 12% revenue market share could translate to an enterprise valuation of $6 billion for the merged company. However, analysts expect there is scope for it to go up by 40-50% in the next few years, once the operational synergies get fully optimised. Company officials however dispute the figures.
The merged entity is expecting approximately Rs 2,500 crore in cost savings annually through synergies between the two operations. Consultants Booz Allen and AT Kearney are helping both parties in the exercise. Investment bank Goldman Sachs is the advisor in the transaction.
RCom spokesperson was not available for comment. Aircel did not revert on mails and messages sent to them.
The merger should help the two improve revenue market share, deleverage balance sheets, optimise spectrum usage and streamline opex and capex synergies. For the last three years, the two have had infrastructure-sharing agreements. They can also leverage the 4G network of Reliance Jio, run by brother Mukesh Ambani, experts said. RCom and Jio are engaged in spectrum trading and sharing alliances.
One of the sources directly involved said, the combined entity -- which will be India's third largest telecom firm by subscribers -- 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. It is also expected to have 120 million active subscribers, even though company officials say the number will actually be higher at around 150-160 million along with a revenue market share of 6% each.
Last December, RCom 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 that operates under the MTS brand. In May, Gurdeep Singh, R-Com's chief of wireless business said that a final structure of amalgamation along with fresh capital expenditure plan will be issued in June.
"The marginal operations have to join forces to defend turf as deep pocket new entrants are set to disrupt the market. Additionally, in this cash guzzling, high capex game, where the big 3 are cornering lion's share of the market, one needs to streamline operating expenditure, said an analyst closely tracking the developments.
As per estimates of analysts of IIFL, RCom-Aircel-Sistema will have 20% of spectrum market share and will be in the top 3 by revenue market share in 13 out of 22 circles. Additionally, it will plug GSM coverage gaps in three out of five circles where RCOM failed to renew 900MHz spectrum.
Aircel has spectrum to offer 3G in 13 markets while RCom has it in 11 circles. But with Jio powering 4G services, the new entity will be able to offer broadband services without sinking in billions of dollars in network and spectrum.
TOWER SALE DELAYS During the 4Q earnings call this month, RCom officials gave a timeline to its divestment programme to analysts. They said the necessary regulatory approvals from DoT and High court for the RCom-Sistema deal is likely in two months. The Rs 30,000 crore tower sale is expected within 2 more months of the merger with Aircel.
But not everyone is convinced just as yet.
Ratings agency Moody's -- also in this month -- said its outlook towards RCom remained negative on the back of delays in its deleveraging plans. What is compounding their worries is the telco has about $450 million in debt falling due in the quarter ending 30 June 2016, and includes a $350 million ECB facility at Reliance Infratel which is guaranteed by RCom 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," said Nidhi Dhruv, vice-president - senior analyst, corporate finance group at Moody's Investors Service Singapore Pte. Ltd.
The delays in the tower sale is also straining the liquidity profile, feels Moody's. Last December RCom had announced a consortium of TPG and Tillman Global Holdings had made a non-binding agreement to buy its telecom towers. TPG subsequently withdrew from the negotiations. Once both the transactions are completed, RCom officials claim their debt will come down by as much as 80% from current levels.
Source:-
Anil Ambani-led RCOM and Aircel may complete -billion merger by July - The Economic Times
RCom and Aircel may finalize -billion merger by July - Times of India
India’s RCom, Aircel to close merger in July – report - Mobile World Live
http://www.indiainfoline.com/article/news-top-story/rcom-and-aircel-may-complete-merger-by-july-116061300011_1.html
