12 years on, Mukesh gets back RCom in pieces

Mukesh Ambani has come a full circle in telecom business.

About 12 years after he ceded control of the Reliance group's telecom business to younger brother Anil, Mukesh Ambani is buying back the business he nurtured from the start.

Reliance Jio Infocomm (RJio) has signed an agreement to buy wireless infrastructure assets from younger brother Anil's Reliance Communications (RCom) which is reeling under a high debt of about Rs 45,000 crore, the two companies announced on Thursday.

The sale comprises of spectrum, towers, optical fibre and other telecom infrastructure assets of Rcom.

The announcement comes on the 85th birth anniversary of Reliance Group founder Dhirubhai Ambani.

Upon the completion of the deal, the original telecom business will be back into the fold of Reliance Industries (RIL). As part of the split of the empire between the two brothers in 2005, the telecom business had gone to the younger brother. Reliance Industries had first entered thetelecom segment in 2002 under elder brother with Reliance Infocomm.

Last year in September, Reliance Industries under RJio entered the telecom sector again and created disruption with free voice calls and dirt cheap data tariffs. The existing players, including RCom, were hit hard after the entry of RJio in the market triggering a consolidation in the telecom industry.

Both RCom and RJio in separate statements said, "Reliance Jio Infocomm Limited, a subsidiary of Reliance Industries Limited, today announced signing of definitive agreement for the acquisition of specified assets of Reliance Communications Limited and its affiliates."

The transaction is expected to close in a phased manner in January-March 2018. Though the deal size has not been disclosed by both the firms but Anil Ambani on Tuesday, while announcing a new plan for RCom, had said he expects a valuation of Rs 25,000 crore from sale of RCom's assets. The company had announced its exit from RBI's strategic debt restructuring (SDR) framework, with zero equity conversion and zero loan write-offs for lenders and bond holders.

RJio emerged as the highest bidder in the two-stage bidding process conducted under the supervision of a high-powered bid evaluation committee, comprising experts from banking, telecom and law.

The assets include 122.4 MHz of 4G spectrum in the 800/900/1800/2100 MHz bands, over 43,000 towers, 1,78,000 RKM of fibre with pan India footprint, 248 Media Convergence Nodes, covering nearly 5 million square feet used for hosting telecom infrastructure.

The transaction is subject to lenders and other government approvals. The deal consideration involves cash payment and transfer of deferred spectrum installments payable to the department of telecommunications. The proceeds will be used 100% towards for debt reduction, RCom said.

RJio in a statement said it will acquire assets under four categories – towers, optic fiber cable network , spectrum and media convergence nodes (MCN) from RCOM and its affiliates. These assets are strategic in nature and are expected to contribute significantly to the large scale roll-out of wireless and fiber to home and enterprise services by Reliance Jio. The consideration is payable at completion and is subject to adjustments as specified in the agreement.

RCom plans to reduce debt by monetising its wireless business and selling land parcels at Dhirubhai Ambani Knowledge City (DAKC). The debt will be through prepayment after the asset monetisation and transfer of spectrum liabilities. Nearly Rs 10,000 crore will go towards non-recourse, long term debt to the SPV set up to develop the land parcels at DAKC. The company is already undergoing a 'robust' transformation to a business-business services company, Anil Ambani had said.

The development came a month after RCom was hit by an insolvency petition from China Development Bank, its largest single creditor. After completion of all transactions, the balance debt in RCom is expected to be around Rs 6,000 crore only, representing reduction of over 85% of total debt.

It will also form a special purpose vehicle for its real estate assets under which it will develop 20 million square feet space on 125 acre over 10 years.

The new RCom will consist of enterprise,GCX, the data center business and the 4G sharing business. About 50% of its revenue will come from overseas operation, Ambani said. Even in this business, the company plans to rope in a strategic investor at an enterprise value of Rs 15,000 crore, Ambani said. Earlier in October, RCom's merger talks with Aircel collapsed. Even a deal with Brookfield Infrastructure Group for selling its tower assets did not materialise.