Ananda Krishnan’s Aircel, Reliance Communications abort merger

aircelNEW DELHI: Reliance Communications Ltd’s plan to merge with Aircel Ltd collapsed in a blow to the Indian mobile phone carriers’ plans to pare debt and gain scale to take on bigger rivals.

“Legal uncertainties” and “interventions by vested interests” caused delays in regulatory approvals, Reliance Communications said in an exchange filing on Sunday. Consequently, the merger has “lapsed with mutual consent”, it said.

Billionaire Anil Ambani’s Reliance and T Ananda Krishnan’s Aircel, a unit of Malaysia-based Maxis Communications Bhd, were due to complete the transaction this year. India’s mobile carriers have been locked in a price war that had worsened with the entry of Ambani’s older brother, India’s richest person, into the market a year ago.

The deal would have created India’s fourth-largest carrier and given the companies more room to pay down combined debt that soared to about 600 billion rupees (RM38.8 billion) as of the end of last year.

Aircel was one of several possible transactions that Ambani was pushing as a way to reduce Reliance’s debt.

Reliance Communications will consider an alternate plan to cut debt, which includes sharing and trading of its airwaves valued at about 190 billion rupees (RM12.2 billion), the company said in the statement Sunday. It will also consider plans to monetise its real estate, tower and fiber businesses.

Banks that lent to Ambani’s companies have met with executives from the group to push for a reduction in debt by selling assets, people familiar with the matter, who didn’t want to be named because the talks were private, have said. RCom, as the wireless unit is known, got a seven-month reprieve from lenders in June to raise money from deals.

Under the terms of the proposed merger with Aircel, Reliance would have transferred more than 40% of its debt, or 200 billion rupees (RM12.9 billion), to a new joint venture. Aircel, which is controlled by a unit of Maxis Bhd., would have offloaded 40 billion (RM2.58 billion) rupees of debt to the venture. Maxis shares were unchanged as of 12.25pm in Kuala Lumpur trading Monday.

For Krishnan, Malaysia’s third-richest person, a deal with Reliance would have helped him hedge some of the risk of vying for subscribers in India’s fragmented mobile phone services market. Last year, an Indian court issued an arrest warrant for Krishnan over his alleged role in a years-old bribery scandal involving the purchase of mobile-phone airwaves – allegations that the tycoon has denied.

The office of the chief operating officer of Usaha Tegas Sdn, Krishnan’s closely held company, said by phone that it had no comment on the collapse of the Reliance deal.

Behind the proposed merger were the rising difficulties of making money in a market that has some of the lowest phone rates in the world. One company responsible for escalating the rivalry is the market’s newest entrant, Jio, which is controlled by Ambani’s older brother Mukesh.

With India’s larger mobile players battling for market share, smaller carriers are doomed in the long term, according to Chris Lane, an analyst at Sanford C Bernstein in Hong Kong. As of the end of July, Aircel was the sixth-largest operator in India with a 7.6% market share, followed by Reliance Communications with 6.9%.

At Reliance, which for years was the country’s second-largest carrier, it’s been a long descent. The company posted profit declines for six out of seven years before posting its first annual loss last fiscal year.

The merger also faced difficulties because of creditors, who didn’t all support the combination. One of the creditors, Ericsson AB, initiated an insolvency petition in September to recover dues of 11.6 billion rupees (RM750 million) – allegations that Reliance has said it plans to challenge.

Reliance continues to be under “a standstill period” till December 2018 and expects to complete debt-restructuring process as per rules, it said in the statement. Shareholders have approved the issue of equity shares to lenders by conversion of loans.

India’s financial markets are closed Monday for a national holiday.