Rcom-Aircel merger: Biggest consolidation deal in India's telecom sector
Termed as the biggest consolidation deal in the telecom space of India, Reliance Communications and Aircel merged their wireless operations on September 14 to give birth to an entity with assets worth Rs 65,000 crore.
New Delhi: Termed as the biggest consolidation deal in the telecom space of India, Reliance Communications and Aircel merged their wireless operations on September 14 to give birth to an entity with assets worth Rs 65,000 crore.
RCom and Maxis Communications Berhad (MCB) hold 50 percent each in the merged entity with equal representation on the board and committees.
Largest telecom operator by customer base
The merger will create India's fourth largest telecom operator by customer base and revenues. The merged entity will have the second-largest spectrum holding among all operators, aggregating 448 MHz across 850, 900, 1800 and 2100 MHz bands.
The transaction will reduce RCom's debt by Rs 20,000 crore, while Aircel's debt would go down by Rs 4,000 crore on closing in 2017.
The entity will have assets of Rs 65,000 crore and net worth of Rs 35,000 crore.
Who said what?
"Together with our partners, MCB, we are delighted to have taken the lead in consolidation of the Indian telecom sector, first, with RCom's acquisition of the wireless business of SSTL (Sistema/MTS), and now, with the combination of our business with Aircel in a 50:50 joint venture with MCB," Reliance Group Chairman Anil Ambani said after the merger.
This combination is expected to create substantial long term value for shareholders of both, RCom and MCB, given the benefits of the wide-ranging spectrum portfolio and significant revenue and cost synergies, he added.
"This deal further reinforces MCB’s commitment to India. Since acquiring Aircel in 2006, MCB has invested in excess of Rs 35,000 crore into Aircel, making this one of the largest foreign investments into India, not only in the telecom industry but across all sectors," MCB said.
According to Moody's Investors Service, "While we view the combination of the wireless businesses positively, we will also need to re-evaluate the credit profile of RCom in conjunction with the proposed organizational and financial restructuring, as the remaining business will be smaller in scale with - in our view - a weaker business risk profile."
Moody's has placed under review for downgrade Reliance Communications Ltd's Ba3 corporate family rating and senior secured rating following the announcement of its plan to merge its wireless business with Aircel Ltd and its first quarter results for the 2016-17 fiscal, it said in a statement.
India Ratings and Research however said that the merger of is a key milestone in the ongoing consolidation in the telecom sector.
Ind-Ra believes that the merger will enable the new entity RCom-Aircel to give strong competition to its peers in the backdrop of the disruption that the launch of operations by Reliance Jio Infocomm (RJio) has caused.
RCom will continue to own and operate its high growth businesses in the domestic and global enterprise space, data centres, optic fibre and related telecom infrastructure, besides owning real estate.
In addition, the new operator will be liable to pay about Rs 6,000 crore to the Centre for the spectrum bought by RCom in the previous auction. The new operator will have assets worth Rs 65,000 crore and a net worth of Rs 35,000 crore.
Once the merger is consummated in about six months, RCom and Maxis will pump in additional equity into the company to strengthen the balance sheet, fund growth, and enhance financial flexibility. Both parties are already in talks with leading international investors in this regard.