Anil Ambani-led Reliance Group's telecom firm Reliance Communications Ltd (RCOM) has agreed to acquire the wireless business of Sistema Shyam Teleservices (SSTL), which operates its telecom services under the MTS brand, in a deal that would mark the first consolidation in the telecom sector since 2009, according to a stock market disclosure.
RCOM had announced in June this year that it is in exclusive talks with Russian firm AFK Sistema to acquire and merge its Indian telecom business SSTL through a stock swap.
The finer financial terms of the deal were not disclosed but SSTL will get 10 per cent equity stake in RCOM on a fully-diluted basis through a fresh issue. Based on the last traded share price of RCOM before the deal was announced, SSTL will get shares worth Rs 2,081 crore ($317 million).
“This will extend the validity of RCOM’s spectrum in 800 and 850 MHz band in eight key circles by 12 years from 2021 till 2033 in Delhi, Gujarat, Tamil Nadu, Karnataka, Kerala, Kolkata, UP West and West Bengal,” it said.
However, RCOM will assume the liability to pay the DoT instalments for SSTL’s spectrum, amounting to Rs 392 crore per annum for the next 10 years. Besides, RCOM will acquire over 9 million customers. It is also expected to generate Rs 1,500 crore more in annual revenues post the transaction.
As part of the agreement, promoters of SSTL have also agreed to pay off all the debt on the company's books before the completion of the merger.
“The combination of our wireless businesses, through the demerger of SSTL wireless business into RCOM for stock consideration, will generate significant capex and opex synergies. The Indian data market is witnessing explosive growth, and SSTL’s proven strength in that space will enhance RCOM’s capabilities in delivering a superior experience to our valued customers,” Gurdeep Singh, president and chief executive officer of consumer business, Reliance Communications, said in the statement.
As per the agreement, minority investors of SSTL will be given an option to exchange their shares in SSTL with pro-rata RCOM shares held by SSTL.
“The merger of SSTL and RCOM’s telecom businesses is a milestone event. 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,” Mikhail Shamolin, president and CEO of Sistema, said.
SSTL is a joint venture between Sistema, the Russian government and the Shyam Group of India. Sistema and the Russian government together own nearly 74 per cent in the company which operates its telecom services under the MTS brand. Sistema itself owns around 56.7 per cent stake in the unit.
It has operations in Rajasthan, Delhi, Gujarat, Uttar Pradesh (West), Kolkata, West Bengal, Kerala, Tamil Nadu and Karnataka telecom circles offering CDMA technology based telecom services. It is pushing its non-voice or data services in the country.
Reliance Communications has been looking to consolidate its business and is separately looking to sell non-core assets to reduce debt. Recently, it invited proposals from investment banks to monetise assets of its tower unit Reliance Infratel within the current year ending March 31, 2016.
On Monday, shares of Reliance Communications were trading at Rs 76.50 each, up 1.66 per cent at 12:45 PM on BSE in a weak Mumbai market.