Anil Ambani-owned Reliance Communications is merging the telecom business of Sistema Shyam Teleservices (SSTL) with itself in a cashless deal worth around Rs 4,500-5,000 that will lead to the first major consolidation in the intensely competitive sector since 2009.
“SSTL will get around 10% stake in the combined entity, but no board seat and no veto powers,” a person directly involved in the deal said. ET had first reported on May 20 that Reliance Communications (RCom) is holding talks on a possible takeover of SSTL in an all-stock deal that could give the latter’s shareholders a stake of around 10% in the merged entity.
The deal will give India’s fourth-largest carrier access to airwaves in the 850Mhz band which can be used for 4G services that it plans to start by year-end. Moreover, it will be able to extend the validity of its licenses by 12 years in eight high revenue generating circles like Delhi, Gujarat, Karnataka and Tamil Nadu. On the other hand, holders in SSTL, which has been struggling to grow its CDMA-based telecom business, will get to be a part of a stronger company.
Three people familiar with the matter said every shareholder of SSTL, the Indian unit of Russian conglomerate Sistema JSFC, will get one share of RCom for 11.5 shares of theirs.
RCom is valued at around Rs 19,000 crore according to the company’s BSE closing stock price on Friday of Rs 75.25.
Besides the stock, RCom won’t take on any loans from pure-play CDMA carrier’s books, a relief to investors worried about the company’s debt, which stood at Rs 38,595 crore at end of June. The company though needs to pay the roughly Rs 400 crore a year, including interest, for 10 years starting February 2016, that SSTL owes to the DoT for the spectrum won in the March 2013 auctions, sources said.