Reliance Communications Ltd (RCom) has called off the merger of its wireless services business with Aircel Ltd, citing regulatory delays and opposition from some creditors, in a development that will further impede its efforts to pare its huge debt.
RCom said it is now looking at alternative ways to reduce its debt, including sale of real estate assets and “optimization of spectrum”, the company said in a filing to stock exchanges on Sunday.
The merger of the wireless business with Aircel and a separate deal to sell RCom’s telecom tower assets was the cornerstone of the Anil Ambani-controlled firm’s plan to pare its Rs45,000 crore debt, amid pressure on earnings because of aggressive tariffs offered by Reliance Jio Infocomm Ltd, controlled by his elder brother Mukesh Ambani.
The company said that the merger agreement with Aircel was allowed to “lapse by mutual consent” as the deal had been facing regulatory delays and opposition from operational creditors.
RCom’s lenders had invoked strategic debt restructuring (SDR) for the telecom company in June. SDR allows creditors to convert a firm’s debt into equity and take over the management of defaulting companies.
The banks, however, allowed the company to postpone debt-servicing payments till December after it presented a restructuring plan involving the sale of its telecom tower business and the spin-off and merger of its wireless assets.
In this standstill period, banks will not convert debt they are owed into equity and the company’s debt will be classified as standard debt on the books of lenders. RCom stated that the “standstill period will continue till December 2018”.
RCom had signed binding agreements in September 2016 for the merger of its wireless assets with Aircel, the exchange notification stated. RCom was expecting a transfer of Rs14,000 crore of debt to the merged entity.
RCom is also looking to sell a 51% stake in its mobile tower arm to Canada-based Brookfield Infrastructure. It expects to net Rs11,000 crore from the stake sale. On 2 June, Reliance Group chairman Anil Ambani had said the two deals will help the firm reduce debt by 60%.
With the merger talks collapsing, the deleveraging process is likely to be delayed further. The plan to sell a majority stake in its tower arm remains intact, a company spokesperson 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,” RCom told stock exchanges.
The merger had been facing headwinds from various operational creditors as well as regulatory authorities. In September, the Indian unit of Sweden’s Ericsson filed insolvency petitions against the telecom company and two of its subsidiaries—Reliance Infratel and Reliance Telecom—before the National Company Law Tribunal (NCLT) in Mumbai to recover its dues worth Rs1,154 crore. The hearing for admission of the petition has been adjourned till 6 October.
The merger had already been approved by the Securities and Exchange Board of India (Sebi), the Competition Commission of India (CCI) and the stock exchanges. Some of RCom’s creditors such as China Development Bank who had earlier objected to the deal as it was not presented to them before being filed with the tribunal have also given conditional consent. The petition for approval of the merger was admitted by NCLT as well in August. The telecom department had also raised objections against the merger and had said the Supreme Court had restrained Aircel from selling and trading 2G spectrum allotted to it in 2006 in a 6 January order.
RCom also said that it will focus more on business to business (B2B), non-mobile businesses. RCOM B2B businesses include enterprise, carrier, internet data centre and global submarine cable network in India and overseas.
“RCom expects monetization of tower and fiber assets and real estate along with optimization of spectrum, portfolio to generate proceeds of over Rs25,000 crore for debt reduction,” the release stated.
Reliance Group’s real estate assets include 125-acre Dhirubhai Ambani Knowledge City (DAKC) in Navi Mumbai and a four-acre property near Connaught Place, New Delhi. The firm said that the plans to monetize these assets are going on and said that the potential valuation for the DAKC complex is about Rs10,000 crore.