Reliance Communication’s Anil Ambani has made good on his promise that an agreement with Russian-owned SSTL was in the works. Next up are the sale of towerco Reliance Infratel, and a spectrum sharing deal with his brother – and sometime rival – Mukesh’s 4G start-up Reliance Jio.
Reliance Communications (RCom) (NSE:
Under the agreement, SSTL will be separated from its Russian holding company parent, Sistema (LSE:SSA), and merged into RCom.
SSTL, which will pay off existing debt prior to the tie-up, will hold a 10% equity stake in the combined company.
Following completion, RCom will cover SSTL’s frequency spectrum licensing fees to India’s Department of Telecommunications.
An appropriate earn-out mechanism has also been agreed in relation to disputed spectrum contiguity charges claimed by the Department of Telecommunications.
RCom is the number four player with 111 million customers, while SSTL is number nine with 8.9 million customers.
A spokesperson for Sistema today denied an Economic Times report last month that suggested RCom and SSTL could subsequently bring Aircel into the fold, saying it did “not correspond to reality.”
The transaction, expected to close in Q2 2016, is subject to SSTL and RCom’s corporate procedures and to approval by Indian regulatory and judicial authorities.
Once it closes, SSTL’s minority shareholders will have the option to exchange their shares in SSTL with the pro-rata RCom shares held by the company.
Welcoming the agreement, Sistema president and CEO Mikhail Shamolin said: “Despite the numerous challenges the sector faced in recent years, the combination of two leading data service providers is a clear sign of progress for the Indian telecom industry.
“We are confident that SSTL’s entry into the equity capital of RCom as a strategic investor will strengthen the competitive position of the combined company and provide subscribers with superior experience by fast-tracking the growth of LTE technology in India.”
Furthermore, Shamolin described the transaction as “an example of growing business ties between Russia and India and encourage other investments between the two countries”.
Gurdeep Singh, president and CEO of RCom’s consumer business, described SSTL as “a valued shareholder and partner” in a combined company that would “generate significant capex and opex synergies”.
The combined group would include SSTL’s “valuable spectrum holdings” in the 800 – 850 MHz band, which would strengthen RCom’s spectrum portfolio and its ability to provide 4G to customers in eight important circles through the year 2033, Singh said.
RCom is also eyeing a sale of its towers business Reliance Infratel, and a potential tie-up with sometime nemesis Reliance Industries owned Reliance Jio.
