Anil Ambani-led Reliance Communications (RComm) is in talks with promoters of rival Aircel for a potential merger of the wireless businesses of the two companies. The deal, if concluded, will create the country’s second-largest mobile phone company by number of subscribers.
“RComm has entered into a 90-day exclusivity period with Maxis Communications Berhad and Sindya Securities and Investments, the shareholders of Aircel, to consider the potential combination of the wireless business to mutually derive expected substantial benefits of in-country consolidation, including opex and capex synergies and revenue enhancement,” the company said in a statement.
The discussions are non-binding in nature, and the transaction will be subject to due diligence and shareholders and regulatory approval.
The merged entity will be created through equity deal where RCom’s shareholders are looking for three shares against each held by them.
The potential deal will exclude RComm’s tower and optical fibre business, for which separate sale talks are on. Earlier this month, RCom signed a preliminary, non-binding agreement with buyout firm TPG Asia and Tillman Global Holdings to sell the tower business. Tillman and TPG will also evaluate purchase of RComm’s extensive nationwide optic fibre assets in a separate transaction.
The Anil Ambani-led company has been sewing up deals to pare down debt, which is currently around Rs 40,000 crore. The sale of the tower business could bring down the debt to about Rs 10,000 crore and also help reduce finance costs by about 85%.
Last month, RCom had agreed to acquire the Indian mobile phone business of Russia’s Sistema JSFC.
According to industry estimates, as of September 30, RComm had 110 million wireless subscribers, Aircel had 85 million and MTS (Sistema’s India business) 8.7 million.
India is the world’s second-biggest in terms of mobile phone subscriptions, just behind China. However, cut-throat competition has put pressure on margins, according to analysts. The entry of Mukesh Ambani’s Reliance Jio with 4G services will also increase competition among telcos and put further pressure on tariffs, they added.
“This kind of consolidation has been expected in the Indian telecom market for quite some time now and we can anticipate more announcements in 2016. With competitiveness rising in the market, sustainability will become challenging for bottom 4 or 5 operators. It makes sense for them to identify long-term alternatives,” said Amresh Nandan, research director with Gartner.
Shares of RComm rose 2.4% to on the BSE on Tuesday.