Setback to Anil Ambani firm’s debt reduction plan; company blames legal uncertainties and ‘vested interests’. (Image: PTI)
In a major setback to its debt restructuring programme, the Anil Ambani-led Reliance Communications’ (RCom) merger plan of its wireless business with Malaysia’s Maxis group-owned Aircel has been called off. An RCom statement on Sunday said the merger of the mobile businesses of RCom and Aircel has lapsed with mutual consent. Both the companies had signed a binding agreement to explore merger possibilities in September 2016. The merger was crucial to the debt reduction efforts of the Anil Ambani-led firm. However, the company said it will continue to implement its plans for monetisation of its tower and fibre assets, as well as real estate as already announced. “Legal and regulatory uncertainties, and various interventions by vested interests, have caused inordinate delays in receipt of relevant approvals for the proposed transaction,” RCom said.
“Unprecedented competitive intensity in the Indian telecom sector, together with fresh policy directives adversely impacting bank financing for this sector have also seriously affected industry dynamics. As a result of the various factors aforesaid, the merger agreement has lapsed. The board approved the same,” it added. It said the board decided that RCom will evaluate an alternate plan for its mobile business, through optimisation of its spectrum portfolio and adoption of a 4G-focused mobile strategy.
“The company continues to be under a standstill period till December 2018 and expects to complete the SDR process as per applicable guidelines. Shareholders of the company at the annual general meeting held on September 26, 2017, have already approved issuance of equity shares to lenders by conversion of loans,” it said.
The RCom-Aircel merger deal has been before the Mumbai bench of the National Company Law Tribunal (NCLT). On September 13, in an another obstacle to the merger plan, Ericsson, which is an operational creditor to RCom, had filed a separate insolvency petitions against the company, Reliance Infratel, its tower arm; and Reliance Telecom, a wholly-owned subsidiary. RCom and its subsidiaries owe Ericsson, which is a telecom equipment vendor, Rs 1,156 crore, which, sources said, has remained unpaid despite issuance of post-dated cheques. The Mumbai bench of the NCLT was scheduled to hear the case on September 26 which has been deferred to October 6.
RCom had said in a regulatory filing on September 13 that it “intends to challenge the said petitions”. For RCom, the merger with Aircel was crucial since it was aiming to reduce its debt by about 60% through the process. The company’s plan was to repay Rs 11,000 crore of its Rs 45,000-crore debt from the proceeds of the sale of a majority stake in its tower business to Brookfield Infrastructure. Another Rs 14,000 crore debt was to move from RCom’s books to the joint venture with Aircel. The joint venture was to be a 50:50 one and Aircel was also supposed to transfer its Rs 14,000 crore of debt to it.
RCom had planned to service the yearly interest payments of around Rs 1,500 crore, on the remaining debt from an expected revenue of Rs 8,000 crore post the merger and the sale. Ericsson had earlier objected to the merger seeking a creditors’ meeting. However, the Mumbai bench of the NCLT in August had admitted the petition for the merger. The bench was to hear the merger petition on October 11 as all lenders were yet to approve the merger. Apart from Ericsson, other objectors to RCom’s merger plans included Chennai Network Infrastructure (CNIL), a GTL subsidiary; and Bharti Infratel. Even the department of telecommunications (DoT) had said the merger needed to be first cleared by the Supreme Court since it is hearing a case against Aircel’s Malaysian promoters in an alleged corruption case.
While China Development Bank (CDB), Standard Chartered Bank and HSBC Daisy Investments had initially objected to the merger, they later agreed on certain conditions. RCom owes the Chinese lender close to Rs 9,000 crore. The telco’s gross debt stood at Rs 45,000 crore in FY17, of which the company owes domestic lenders Rs 25,000 crore. RCom had received the approval for the merger from the Securities and Exchange Board of India .
