Reliance Communications to merge its wireless operations with Aircel and raise over $1 billion in equity

Reliance Communications Ltd will merge its mobile business with the smaller rival telecom company Aircel, from which it aims to raise close to $1 billion in shares before the closing of the deal in 2017. The move which is primarily aimed at easing the tightening debt situation that the two companies are currently caught up in will make the RCom-Aircel unit to be a telecom operator with one of the largest in terms of customer base and revenues generated.

The combined entity will be initiated with a bank debt of about Rs. 28,000 crores on its books, officials said, and both Aircel and RCom will transfer Rs 14,000 crore each of debt into the merged entity. Added payments of nearly Rs 7,000 crore will also have to be carried out by the merged company to the Department of Telecommunications for spectrum held by Reliance Communications in 14 of India’s 22 telecoms zones. When asked how these substantial payments will be financed, Punit Garg, President at RCom, said: “There’s enough interest we’ve received from international financial investors in the merged company.”

Reliance Communications will still have a significant amount of debt, part of which it aims to recover by the sale of its telecom tower and optic fibre assets; the company is reportedly in talks with the Canadian asset management company, Brookfield, to sell its tower portfolio for nearly Rs 19,500 crore. It will transfer the remaining debt amount onto lucrative businesses. Aircel’s debt, on the other hand, will be reduced to an extent through the sale of airwaves and mobile masts.

The two companies will hold fifty percent of the combined unit each, and claim equal representation on the board of members. The merger of Aircel and RCom puts the combine at second place in terms of the spectrum the two are using. Promoters of both companies will also be equal owners of the new entity, which remains yet unnamed. The combined business will be one of the largest private companies in India with an asset base of around Rs 65,000 crore and net worth of Rs 35,000 crore.