On April 24, 2017, Reliance Communications (RCOM) received 99.99% of their shareholder’s approval for Scheme of Arrangement for demerger of the wireless division of the company and Reliance Telecom Limited (RTL), a wholly-owned subsidiary of the company, into Aircel Limited (AL) and Dishnet Wireless Limited. The company had already received approval from the Securities and Exchange Board of India, BSE, National Stock Exchange of India Limited and Competition Commission of India for the proposed Scheme of Arrangement.
This was a total noncash deal in which AL would issue and allot 15,950,000,000 fully paid up equity shares of AL in consideration for the demerged undertaking to Reliance Communications Ltd due to which RCOM was to become a 50% shareholder of AL. The deadline to complete the merger as per FMA was September 30, 2017.
What was RCOM’s blueprint to revive its fortunes?
||Mar-17 (Rs In crore)
|Total RCOM Debt on consolidated basis
|On December 2016, RCOM signed binding agreements with Brookfield infrastructure and its institutional partners for sale of its towers business. Due to which RCOM was to receive upfront cash payment of Rs 11,000 crore for a 51% stake in Reliance Infratel Ltd, this being one of the largest foreign direct investments in India.
|Transfer of debt of Reliance Communications Ltd to Aircel under the scheme of arrangement
|Balance debt left with RCOM shows a whopping 44% reduction in the debt
Similarly, Sistema Shyam Teleservices Ltd’s (SSTL) merger with RCOM in which RCOM will get validity of its spectrum across eight circles — Delhi, Gujarat, Kolkata, Karnataka, Tamil Nadu and Kerala — extended till financial year 2033. The SSTL’s 850 MHz spectrum in eight circles is valued at Rs7,500 crore. This is an all stock deal where SSTL post-amalgamation will be allotted 10% equity stake subject to condition in RCOM and there is no cash outflow incurred by RCOM. As per scheme of arrangement with Aircel, the spectrum assets and liabilities of SSTL transferred to RCOM related to wireless telecom business will also be demerged to Aircel.
Reasons for collapse of the merger with Aircel
- DoT in its affidavit before the NCLT, has stated that the Supreme Court had restrained Aircel from selling and trading 2G spectrum allotted to it in 2006. The Supreme Court had also said that it may cancel Aircel’s use of the 2G licences if owners of the Maxis Group continued to avoid appearing before Indian courts in a case connected with irregularities in grant of 2G spectrum licenses. Maxis Group has a 74 per cent stake in Aircel.
- The Department of Telecommunications (DoT) has submitted before the National Company Law Tribunal (NCLT) that Reliance Communication’s (RCOM) merger with Aircel would need a no-objection or clearance from the Supreme Court.
- As on date, the SSTL merger with RCOM did not received DoT’s No Objection Certificate. This scheme of merger was announced in November 2015 and the process was delayed by nine months from Feb 2016 to Oct 2016 in Bombay High Court by one shareholder holding <10 shares of RCOM. This possibly can be cited as intervention of vested interests to derail the deal.
- NCLT has admitted Ericsson India Pvt Ltd’s Insolvency proceedings application against Reliance Communications Ltd, Reliance Infratel Ltd and Reliance Telecom Ltd for total unpaid dues of Rs 1,150 crore and its hearing was due on October 6. 2017.
- During the quarter ended 31st March 2017, RCOM saw a decline of about 3 million subscribers and 9,00,000 subscribers of Aircel were lost between Dec and July, this was the period when merger was announced. It appears that both these companies didn’t participate in unlimited voice calling-a prepaid business voice segment.
How Lenders were unhappy with the deal
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