Brothers Ambani seal Rs. 12,000 cr deal
Once-feuding billionaire Ambani brothers on Friday announced a Rs 12,000-crore telecom tower deal, the biggest pact between them since their reconciliation.business Updated: Jun 08, 2013 00:50 IST
Once-feuding billionaire Ambani brothers on Friday announced a Rs 12,000-crore telecom tower deal, the biggest pact between them since their reconciliation.
Mukesh Ambani-controlled Reliance Industries Ltd’s (RIL’s) telecom arm will lease up to 45,000 mobile masts from younger brother Anil Ambani-led Reliance Communications Ltd (RCom) over the lifetime of the contract, the two groups announced. An RIL spokesperson said the long-term contract had no fixed length.
This is a win-win deal for the brothers. RIL’s Reliance Jio Infocomm now gets a nationwide network of rooftop towers that will help it quickly roll out the high-speed 4G broadband services, which promises a download speed of about 100 Mbps.
Reliance Jio Infocomm, the only company to have won pan-Indian spectrum for 4G in 2010, is yet to start commercial services.
On the other hand, an estimated Rs. 1,000 crore rental income per year from the towers will help RCom repay interest on its debt. RCom has a debt of about Rs 37,000 crore and its interest payment is about Rs 2,700 crore per annum.
RCom is India’s third-biggest cellular carrier by customers, but profits have been under pressure, mainly due to its debt burden.
“This is going to be a positive for Reliance Communications as it opens a new source of revenue for them,” said KK Mital, head of portfolio management at Globe Capital Market. “It’s also good for Reliance Jio because they are getting ready infrastructure and the big benefit is that there is no upfront investment in building infrastructure.”
Shares of RCom were trading 0.47% lower at Rs 117.50, while RIL was quoting 0.82% higher at Rs 798.80 on the BSE in late morning trade.
This is second such deal between Mukesh, India’s richest man, and younger brother Anil. In April, they had signed a deal for sharing RCom’s nationwide network of optical fibre cable. RCOM got about Rs 1,200 crore from the deal.
The deal two months ago was the first business tie-up between the brothers since ending a long-running feud.
Business tycoon Dhirubhai Ambani’s death in 2002 led to a power struggle between his two sons that split the Reliance empire. Mukesh ended up with the core energy business, and Anil got the telecoms, financial services and power businesses.
RIL, India's fourth-largest company by market value, has been under pressure from investors worried by its slowing natural gas business and its drive into consumer sectors such as telecoms and retail.
On Thursday, Mukesh Ambani told shareholders at the company’s annual general meeting that he had a bullish view of the potential for digital services in India, and the Reliance Jio unit would more than triple its headcount to 10,000 over the next year. He did not, however, say when services would be launched.
How it benefits RIL
# Reliance Jio has broadband wireless spectrum in 22 out of 23 telecom circles in India capable of offering 4G services.
# Reliance Jio, the only company to have won pan-Indian spectrum for 4G in 2010, is yet to start commercial services.
# The pact with RCom will help Reliance Jio’s “accelerated roll-out” of planned 4G services.
# The company has to just install its equipment on RCom’s network of up to 45,000 towers to offer 4G services, which promise a download speed of about 100 Mbps.
How RCom gains
# An estimated R1,000 crore rental income per year from the towers will help RCom repay interest on its debt.
# RCom has a debt of about R37,000 crore and its interest payment is about Rs 2,700 crore per annum.
# It is India’s third-biggest cellular carrier by customers, but profits have been under pressure, mainly due to its debt burden.
# RCom has a customer base of over 130 million, including more than 2.5 million individual overseas retail customers.
# The company’s corporate clientele includes 35,000 Indian and multinational corporations and over 800 global, regional and domestic carriers.