RCom buys Sistema's Indian operations

As part of the deal, Sistema will acquire 10% stake in Reliance Communications

Mumbai, Nov 2:

Marking the first major acquisition in recent times, Reliance Communications (RCom) has entered into an agreement to acquire Russian conglomerate Sistema JSFC’s Indian telecom business.

The acquisition will be by stock and takeover of SSTL’s spectrum in instalments of ₹392 crore a year for the next 10 years.

According to sources, this pegs the deal size at about ₹4,500 crore.

Under the agreement, Sistema Shyam Teleservices Ltd (SSTL), which provides telecom services under the MTS brand, will be merged with RCom. Following the acquisition, SSTL will get a 10 per cent stake in RCom. Promoter shareholding in RCom will come down to 54 per cent.

Significant synergies

“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 for mutual benefit,” said Gurdeep Singh, President and Chief Executive Officer, Consumer Business at RCom.

However, there will be no board seats or veto rights available to SSTL.

“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,” said Mikhail Shamolin, President and CEO of Sistema.

On its part, SSTL intends to pay off its existing debt before the closing of the transaction.

The company has also agreed for a payment or an earn-out mechanism for the Department of Telecommunications (DoT) disputed spectrum contiguity charges.

Rationale of the deal

On completion of the acquisition, which is subject to certain conditions and regulatory approvals, RCom will get about nine million customers and ₹1,500 crore in annual revenue.

In addition, the company, controlled by billionaire Anil Ambani, will get superior 850 MHz band spectrum held by SSTL, which is suited for 4G LTE services.

Also, getting the spectrum eliminates future cash outgo for RCom in eight circles till 2021.

Further, it will also extend RCom’s spectrum validity in the band for another 12 years (from 2021 till 2033).

Shares in RCom ended up 6.18 per cent at ₹79.90 on the BSE, which closed 0.37 per cent down on Monday.

Sandip Ginodia , Director

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