Russia’s Sistema has emerged as the highest bidder for the remaining assets of Anil Ambani-owned Reliance Communications at a total value of $1.5 billion, said three people familiar with the developments. The assets comprise overseas and enterprise telecom business and data centres.
Sistema JFSC’s bid stands at $1.2 billion (Rs 7,800 crore) in addition to about $300 million (Rs 2,000 crore) that Reliance Communications owes Sistema.
The Russian company is looking to fully buy out the Indian telco, but may have to do so in parts, said one of the persons mentioned above. Last week, Sistema made a bid for RCom’s undersea cables, data centres and domestic enterprise business.
“At the moment, the asset could even be valued at $2 bn, but that value is fast eroding as costs are mounting,” said one person close to the details. This sale would be the last of Anil Ambani’s association with telecom sector. The business reported nearly Rs 1,200 crore of operating profit when RComBSE 0.00 % last reported its quarterly results. However, now that Reliance has shut its mobile network, the overseas business is feeling the cost pressure.
“They used commonly leased office space, shared network resources, including servicing of the network,” the person said. Now, the remaining business has to incur those costs, which is fast eroding profitability, he said. Even some of the cost of the operating centre falls on the overseas arm.
RCom has been trying to optimize its operations by reducing the number of offices. It used seven offices, but has now centralized to just four, the person said.
Russian Roulette
Global Cloud Exchange (GCX), which holds the undersea cable and Indian small and medium businesses using RCom’s services, had earlier attracted telecom sector bellwether Airtel’s interest, which had waned since January. Among the three bids it got for the business, one was for a smaller piece of the business, said one of the persons mentioned earlier.
Contiguous spectrum in the 800 MHz band is more efficient and essential for offering 4G services. Last year, RCom had concluded the acquisition of Sistema’s Indian telecom business – Sistema Shyam Teleservices (which retailed CDMA-based mobile services under the MTS brand) – in a deal that saw Sistema Shyam’s promoters getting a 10% stake in RCom.
Telecom Travails
RCom shut its wireless business at the end of November after failed attempts to merge with the unlisted Aircel. The Anil Ambani company had acquired the undersea cables in 2004 by buying Flag Telecom. At the time, it was the only company apart from Tata Communications, formerly Videsh Sanchar Nigam, to have rights to land calling traffic in India. This gave the company some marquee customers as internet connectivity penetration rose for businesses. The company also ran an economical home calling facility for Indians overseas, which had accounted for some premium subscribers.
Historically this has been the most profitable business for the company. At the time RCom closed its debt restructuring in December, chairman Anil Ambani had said bids received for other parts of the business would leave about Rs 7,000 crore debt in the company along with the unit that is now up for sale.
