Mukesh Ambani signs one more win-win deal with RCom

Through his deals with his younger sibling, Mukesh Ambani is getting telecom infrastructure for RJio's 4G services at probably a fifth the rate of building his own network. Anil Ambani’s RCom on the other hand would be able to generate additional revenues from its infrastructure that can reduce debt of about Rs40,000 crore from its books

Mukesh Ambani-led Reliance Jio Infocomm (RJio) has signed one more deal with younger sibling Anil Ambani's debt-ridden Reliance Communications (RCom) for sharing telecom towers across the country. The aggregate value of the deal is over Rs12,000 crore and would help RCom to cut down its huge debt substantially.

 

As per the agreement, RJio would utilise up to 45,000 ground and rooftop based towers across RCom's nationwide network for accelerated rollout of its state-of-the-art 4G wireless broadband services, the company said in a release. These telecom towers carry RCom's CDMA and GSM network. While 75% of the towers are ground-based, the rest are rooftop based.

 

Today's agreement follows the inter-city optic fibre sharing agreement already signed in April 2013 as part of a comprehensive framework of business co-operation between RJio and RCom. This would result in RCom earning Rs1,200 crore over a period.

 

 

Both the deals, for sharing optical fibre network and the other for sharing telecom towers look like pure business deals. Well, at least on the paper. But more about it later.

 

The signing of agreement between RJio and RCom for telecom towers and optical fibre network (earlier in April) is beneficial for both the companies. Especially, RJio’s parent Reliance Industries (RIL) is a cash rich conglomerate (as of March 2013, it had cash balance of around Rs84,100 crore), while RCom is striving hard to reduce the debt level from its books. RCom had maintained its stance of selling stake in its tower assets, which might help in deleveraging the balance sheet and reducing debt. According to reports, RCom has a debt of about Rs40,000 crore as of March 2013.

 

Even during the quarter to end-March, RCom would have reported a loss, but for one time write back of provisions, which led to Rs550 crore extra other incomes. Its gross debt in rupee terms has increased Rs40,145 crore in FY13 from Rs36,917 crore in FY12.

 

In March 2013, RCom made yet another attempt to reduce its debt. In a regulatory filing, RCom, had said it was in talks with Bahrain Telecommunications Co (Batelco) to sell stake in Reliance Globalcom, its enterprise business unit. However, nothing has been finalised as yet.

 

According to a research report from ICICIDirect, RCom may strike a deal with Samena Capital for stake sale in Reliance Globalcomm. “For any meaningful reduction in debt, the company would have to sell a majority stake in its subsidiary. Though this would help prune down debt by a substantial amount, RCom’s EBITDA would be wiped off by a considerable amount as Reliance Globalcomm contributed 33.4% and 31.8% to consolidated topline and EBITDA, respectively,” the brokerage added.

 

Earlier on 9 March 2011, the Anil Ambani group company signed Rs8,700 crore loan facility with China Development Bank (CDB) for refinancing of 3G spectrum fees. The facility included Rs6,000 crore ($1.33 billion) for refinancing 3G spectrum fee payments by RCom and Rs2,700 crore ($600 million) for equipment imports from Chinese vendors.

 

In 2012, RCom had also withdrawn its $1-billion initial public offering (IPO) plans for its submarine cable unit Flag Telecom, citing unfavourable market conditions.

 

Coming back to the renewed love between the two Ambani companies, this is logical for both RIL and RCom to execute infrastructure sharing deals, provided the pricing and utilization benefits both.

 

While RJio would benefit from spending money and time for building infrastructure for its 4G network, RCom would be able to generate additional revenues from its existing telecom infrastructure.

 

RJio would be able to save cost of building optical fiber network (the cost to lay only fiber is from Rs4 lakh to Rs5.5 lakh per km, excluding the cost for rights of way that may go up to Rs10 crore in metros) and telecom towers (estimated to be between Rs1.3 crore to Rs3 crore each). Moreover, backhaul fibre would be needed to link the towers to the network, which could again be costly and time-consuming.

 

Telecom has always been a sector close to the heart of the RIL’s chairman and managing director, Mukesh Ambani. However, he had to give up Reliance Infocomm (which later became RCom) to Anil Ambani in 2005 when the Reliance empire was split.

 

Later in 2010, Mukesh Ambani-led RIL re-entered the telecom arena with a bang, announcing the acquisition of Infotel Broadband Services Pvt Ltd, which had emerged as the sole winner of pan-India broadband spectrum, for Rs4,800 crore.

 

Soon after signing the deal for sharing optical fibre network, Mukesh Ambani-led RIL parked more than Rs800 crore in various mutual fund schemes of younger sibling Anil-led Reliance Group. RIL’s investment in Reliance MF schemes, which has been made over a period of eight months, came as a clear departure of the oil-to-retail conglomerate’s earlier stance of parking surplus funds into almost all the mutual funds, expect on those run by the Anil Ambani-led group.

 

At the end FY2012, RIL had invested over Rs8,700 crore in various mutual fund schemes, including fixed maturity plans (FMPs), but they did not include any scheme of Reliance MF. In contrast, RIL has always figured prominently in the stock portfolios of various schemes of Reliance Mutual Fund.

 

At least 13 schemes of Reliance Mutual Fund had RIL as one of the biggest stock in their respective portfolios as on 31 March 2012 and together these funds held RIL shares worth well above Rs500 crore.

 

While the deals are being signed, big plans are being announced, there yet is no date being announced for the impending launch of RJio’s 4G services for reasons best known to Mukesh Ambani.

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