It was a deal that the Anil Ambani-owned Reliance Communications was pinning on to reduce large portion of its huge debt of about Rs 45,000 crore. But, the proposed merger of RCom's wireless telecom business with rival Aircel into a separate entity fell through amid regulatory uncertainties, sending its shares crashing more than 11 per cent per cent on Tuesday. The stock hit a record low of Rs 16.75 during the session.
The deal with Aircel, coupled with the funds it will receive from a separate agreement to sell 51 per cent in its telecom tower business to Canada's Brookfield Infrastructure, would have helped RCom cut its debt by more than half to around Rs 20,000 crore.
However, with the Aircel merger deal now in the bin, the younger of the Ambani brothers must look to other means to reduce its debt burden.
Key among the options would be to sell its prime real estate in Navi Mumbai, which houses the Dhirubhai Ambani Knowledge City. The DAKC is spread across 125 acres, with potential development rights of over 17 million square feet. The company also has prime property of about four acres in the capital New Delhi, near Connaught Place.
“Indications of interest from leading developers and independent third party valuations have established significantly higher present value monetisation potential of Rs 10,000 crore for the DAKC complex alone,” it claimed, adding development agreements could be finalised in the next few months.
RCom may also now look to optimise its mobile spectrum portfolio and adopt a 4G focussed mobile strategy. The company already offers 4G services through a spectrum sharing agreement with Reliance Jio.
Separately, the acquisition of the mobile business of Sistema Shyam Teleservices, expected to be completed this month, will give it additional spectrum in the 800-850 MHz band.
RCom said it has spectrum across 800/900/1800/2100 Mhz bands, valued at over Rs 19,000 crore for the balance of validity period, based on last auction pricing and will look to monetise the same, either via trading or sharing arrangements.
The company will also look to grow its B2B businesses, which include the global submarine cable network, enterprise and internet data centre.
RCom and Aircel had signed binding agreements in September last year for the merger of their mobile businesses into a separate entity, where a part of the debt of the two companies was to be transferred.
The merger would have made it the fourth largest telecom operator in the country.
However, “legal and regulatory uncertainties, and various interventions by vested interests, have caused inordinate delays in receipt of relevant approvals for the proposed transaction,” said RCom.
Without naming names, the Anil Ambani firm has for long blamed “unprecedented competitive intensity” in the telecom sector that hurt the industry as a whole. Elder brother Mukesh Ambani's aggressive foray into the sector last year with Reliance Jio, offering free voice calls and extremely cheap data plans, have made the incumbents also launching a price war, which have hit revenues and profits across the industry.
RCom also flagged off “fresh policy directives adversely impacting bank financing for this sector” for the industries woes.
The Telecom Regulatory Authority of India, last month, cut interconnect usage charge (something companies charge for allowing domestic calls from rival telecom firms to terminate on their network) sharply to six paise per minute from 14 paise per minute from October 1 and it would be completely abolished from 2020, which experts have said will put further pressure on the stressed sector.
Analysts say calling off the merger deal was a setback to RCom's deleveraging plans.
Importantly, while the deal with Brookfield will still go through, its valuations will now have to be reviewed due to the Aircel merger being called off, said broking firm CLSA. It has a “sell” rating on the stock.
RCom was expected to receive about Rs 11,000 crore from the stake sale in the tower assets to Brookfield. However, that value may now reduce as it was based on the merged assets of RCom and Aircel.
The continued loss in market share also remains a risk, other analysts add.
Sector analysts as well as credit rating agencies have for long warned that consolidation had become key to the sector's financial sustainability. Already companies like Sistema Shyam and Telenor have exited the market. Tata Teleservices too has been looking to exit the business. It is expected that in the medium to long term, the industry will be left with about four large players. This would put further pressure on players like RCom and Aircel, now that they have called off plans to merge.
