RCom Shares Gain on Merger Talks With Sistema

Reliance Communications shares jumped 3 per cent on Tuesday following the company's announcement yesterday that it was in exclusive talks to buy Russian conglomerate Sistema's Indian mobile phone operations through a stock swap.

Reliance Communications and Sistema both have 800 MHz spectrum currently. The deal would enable debt-burdened Reliance Communications access Sistema's airwaves in nine circles, without a significant payout as most of its airwaves were bought in competitive auctions.

"Sistema has only 10 million subscribers but owns spectrum in nine circles, which would enable RCom to launch its 4G services. If successful, this will start a wave of consolidation in the Indian telecom sector," Maybank said in a report.

Sistema may get 30-33 per cent stake in the combined entity considering its spectrum is valued at $1.2 billion, analysts say. The company posted an EBITDA loss of $80 million on revenues of $300 million during 2014-15, according to estimates.

Sistema's Indian telecom business, Sistema Shyam Teleservices, is one of the market's smallest players with less than a 1 per cent market share. Billionaire Anil Ambani-controlled Reliance Communications is India's fourth-largest telecom operator with nearly 6 per cent market share.

Sistema and Russia's government together own nearly 74 per cent in the unlisted Sistema Shyam joint venture, while India's Shyam Group has a 24 per cent stake. The rest is owned by individual Indian investors.

The company scaled back operations in 2013 when it had to buy new permits after its earlier permits were cancelled by a court order linked to the 2G scam.

If the two merge their India businesses, the combined entity would have 52 per cent of allocated spectrum in 800 MHz band. Since one operator is prohibited from owning more than 50 per cent of spectrum in a particular band, the combined entity may have to surrender part of the spectrum, analysts say.

As of 09.38 a.m., Reliance Communications shares traded 1.3 per cent higher at Rs 59.60 as against a 0.5 per cent cut in the broader Nifty.