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Pin to quick picksVodafone Share News (VOD)

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Share Price: 67.16
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UPDATE 2-RCom, Aircel to merge businesses as India telco consolidation gathers pace

Wed, 14th Sep 2016 15:43

* Reliance Comm, Maxis to own half each of merged entity

* Merged cellular carrier to have $4.2 bln debt - source

* High competition fuelling consolidation in India telecoms (Adds further details, analyst comment)

By Sankalp Phartiyal and Devidutta Tripathy

MUMBAI, Sept 14 (Reuters) - India's Reliance CommunicationsLtd is to combine its wireless business with smallerrival Aircel to create the nation's third-biggest mobile phonenetwork operator in terms of subscribers, as intensifyingcompetition pushes consolidation in the world's second-biggestmarket.

Reliance Communications, controlled by billionaire AnilAmbani, and Aircel's parent Malaysia's Maxis Communications Bhd will each own 50 percent of the merged carrier, thetwo sides said in a joint statement on Wednesday.

The merged business with more than 190 million customerswill overtake Idea Cellular Ltd in terms ofsubscription numbers although will still lag it in terms ofrevenue.

Currently Reliance Communications is the fourth-largestmobile carrier by subscribers, while Aircel ranks sixth in themarket of 10 players led by Bharti Airtel Ltd andVodafone Group Plc's Indian unit.

With more than 1 billion mobile phone subscriptions, India'stelecoms market is the world's second-biggest behind China, buttough competition means low margins.

Competition is intensifying further with Reliance Jio, a new4G telecoms venture backed by Anil's elder brother and India'srichest man Mukesh Ambani, that started operations this month isexpected to shake up the market with its cut-rate services.

"We expect this combination to create substantial long-termvalue for shareholders of both ... given the benefits of thewide-ranging spectrum portfolio and significant revenue and costsynergies," Reliance Communications Chairman Anil Ambani said inthe statement.

The two sides are also talking to international investorsabout injecting more equity capital into the combined business,the companies said in the statement. Reliance Communicationswill separately run its enterprise business comprising underseacables and data centres after the deal closure in 2017.

"It is just another way of surviving," Jigar Shah, chiefexecutive at Maybank Kimeng Securities India, said of the deal. "They can become better only if the two partners bring furthercash into the business and they buy a reasonable amount of 4Gspectrum."

In the first sign of sector consolidation, RelianceCommunications in November agreed to buy Russian conglomerateSistema's Indian mobile phone business in an all-stockdeal. That transaction has yet to be completed.

DEBT BURDEN

The combined business will have debt of about 280 billionrupees ($4.2 billion) as Reliance Communications and Airceltransfer some debt into the new entity, a source with directknowledge of the matter said.

The deal will help cut Reliance Communication's debt by 200billion rupees ($3 billion), or more than 40 percent of itstotal debt, while Aircel's debt will fall by about 40 billionrupees, the companies said, without disclosing their latest debtlevels.

As of end-March, Reliance Communications had net debt of413.62 billion rupees. Closely-held Aircel had 185 billionrupees of debt as of 2013, according to rating agency ICRA.Reliance Communications, the most leveraged listed telecomscarrier, also has plans to sell its telecoms masts to cut debt.

The companies had entered into exclusive talks in Decemberlast year for the deal, which is subject to regulatory approvalsand consent of creditor banks.

Goldman Sachs, SBI Capital Markets, Standard Chartered andA.T. Kearney were among the advisors for the deal.($1 = 66.8061 Indian rupees) (Reporting by Sankalp Phartiyal and Devidutta Tripathy; Editingby Louise Heavens, Greg Mahlich)

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