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MUMBAI | KOLKATA: Mukesh Ambani-led Reliance Jio Infocomm is poised to bail out younger brother Anil Ambani’s debt-ridden telecom business by buying the wireless assets of Reliance Communications (RCom), having signed an accord that was announced on father Dhirubhai Ambani’s 85th birth anniversary.
Jio inked a definitive agreement to acquire specified assets of RCom and its affiliates in an all-cash deal on Thursday. Market and banking circles pegged the deal size at about Rs 24,000 crore, but this was not confirmed by either of the companies.
RCom said it would use the proceeds of the cash deal solely for prepayment of debt. The company, weighed down by Rs45,000 crore of loans and the failed merger with Aircel, had been in the midst of a strategic debt restructuring (SDR) programme with the lenders.
State Bank of India is its largest local lender while China Development Bank (CDB), which had filed an insolvency petition in the bankruptcy court to recover $1.78 billion, or about Rs11,460 crore, its largest overall lender. While CDB is expected to withdraw its insolvency petition by January 5 — the next date of hearing — sources at Ericsson, which adopted a similar strategy to recover some Rs1,100 crore dues from RCom, said its case was still on though the company officially did not comment.
The deal, the contours of which were announced by Anil Ambani on December 26 as part of a new debt repayment plan, beat a deadline of December 28 by when the joint lenders forum (JLF) had to take a decision on whether to convert its debt to equity and would mean RCom can now exit the SDR process and retain ownership of the company whose focus will now be on enterprise business, with the wireless operations shut down.
This agreement also came about a decade after the brothers divided the Ambani empire between with them, with the telecom interests going to the younger sibling. Thursday’s agreement marks the integration of the wireless assets of the two brothers under one roof as it had been before the split. Reliance Communications had shut its wireless business at the end of November.
“Jio or its nominees will acquire assets under four categories — towers, optic fibre cable network, spectrum and media convergence nodes (MCNs)—from RCom and its affiliates,” the telecom unit of Reliance Industries said in a media statement. “These assets are strategic in nature and expected to contribute significantly to large-scale rollout of wireless and fibre-to-home services by the company.” The Mukesh Ambani company said the acquisition will be subject to approvals from governmental and regulatory authorities, consent from all lenders, release of all encumbrances on assets and other conditions.
Consideration is payable at completion of the deal and subject to adjustments specified in the agreement. RCom said it had signed definitive binding agreements with Jio for the sale of its wireless spectrum, tower, fibre and MCN assets. Jio was advised on the transaction by Goldman Sachs, Citigroup Global Markets, JM Financial, Davis Polk Wardwell LLP, Cyril Amarchand Mangaldas, Khaitan Co and EY.
The Jio deal consideration, RCom said, “comprises primarily of cash payment and includes transfer of deferred spectrum instalments payable to the telecom department (DoT).” RCom said Jio had emerged as the highest bidder in a transparent process conducted under the supervision of a high-powered bid evaluation committee, comprising experts from banking, telecom and law. As many as 15 bidders vied for the telco’s assets. According to an industry source, Airtel, Vodafone India, Idea Cellular and several private equity players had also been in the race for RCom’s assets. Airtel had earlier said that it was keen on some of RCom’s spectrum and equipment, but declined to comment on Thursday. Idea Cellular and Vodafone did not respond to ET’s queries on the same.
The RCom assets that will change hands include 122.4 units of 4G airwaves across the 850, 900, 1800 and 2100 MHz bands, over 43,000 towers, 1,78,000 RKm (route km) of fibre with a pan-India footprint, and 248 media convergence nodes, covering 5 million sq ft used for hosting telecom infrastructure.
GOOD FOR THE SECTOR
The deal is good for the sector, which is in consolidation mode, and would particularly “offer relief to RCom’s bankers as the stress levels on their balance sheets would ease significantly,” said Prashant Singhal, telecom, media and technology leader for emerging markets at EY. The “deal is good for Jio as it consolidates its wireless infrastructure, including spectrum from RCom,” said Mritunjay Kapur, national head, telecom, media and technology for KPMG. Former Bharti Airtel CEO Sanjay Kapoor said the deal was good news for debt-laden RCom and stakeholders seeking to recover dues.
ET earlier reported Jio was believed to have submitted bids worth over .`18,000 crore for acquiring RCom’s assets, including spectrum, towers and optic fibre. Another telecom analyst who did not want to be named said the Jio-RCom transaction represented a bailout. “After the Aircel deal fell through, what options did RCom have?” he said, referring to a merger plan between the two that got scrapped.
Earlier this week, RCom said it would sell its telecom assets, including spectrum, tower and fibre worth around Rs 25,000 crore by March 2018 to prepay lenders and exit SDR. The company plans to also monetise its real estate assets to generate an additional Rs 10,000 crore, and divest stake worth Rs 4,000 crore in the residual RCom — which consists of the global undersea cable business, data centres and enterprise business, after having shut the wireless business — to overseas private equity investors. At the end of this all, RCom expects debt levels to be around Rs6,000 crore, down from Rs45,000 crore.
RCom shares closed 7.72% higher at Rs 30.96 on the BSE on Thursday. In three trading sessions, the telco’s stocks shot up nearly 90% adding Rs 4,052.09 crore to its market valuation. RCom said it expects the deals to close in a phased manner between January and March 2018, subject to approvals.