Reliance Communications to restructure tower company

Anil Ambani group today decided to separate tower business of its telecom arm Reliance Communications to create an independent firm, saying it was in advanced stage of talks for stake sale in the new entity.

The purpose of creating a separate firm is to secure business from other telecom and broadband players, including Mukesh Ambani-led RIL, while at the same time cutting debts of RCom, which has also decided for a strategic sale of 26 per cent equity.



Following the spin-off, Reliance Infratel would become the world's largest telecom infrastructure company, while Reliance Communications' balance sheet would improve with lower debts.

RCom and R-Infratel are at an advanced stage of discussions with several domestic and international strategic and financial players to finalise the proposal and the transaction would be announced shortly, a statement said.

The company also said discussions were also continuing for 26 per cent stake sale in RCom as also for possible consolidation or combination options.

The boards of directors of RCom and its subsidiary Reliance Infratel today approved in-principle a proposal to restructure ownership of R-Infratel to facilitate efforts of new players to roll out their networks fast and in a cost effective manner.

The announcement comes on the heels of the estranged brothers, Mukesh and Anil, holidaying in a game reserve in South Africa and days after elder Ambani Mukesh announcing nearly $5 billion investment in the telecom sector through RIL's newly acquired subsidiary Infotel that bagged pan-India spectrum for Broadband Wireless Access.

Commenting on the development, Anil Ambani, chairman, RCom, said: "I am personally looking forward to an era of healthy co-operation and collaboration with existing and new players, especially recent winners of 3G and BWA spectrum."

Incidentally, RCom also offers broadband services through its limited mobility and could have led to clash of interest in case RIL had sought cooperation for infrastructure support.

On a specific question by analysts whether it could collaborate with Anil Ambani group for infrastructure like optic fibre and towers, RIL had said on Saturday that it could take services from any of the existing players.

The move to create a separate entity would also help RCom to reduce its debts substantially and enhance financial flexibility, Anil Ambani said.

RCom's has paid up debt capital of Rs 3,000 crore and a debt-equity ratio of 0.56, which means its debt size is double the size of equity capital, as of March 31, 2010.

R-Infratel, in its draft prospectus with regulator Sebi, had disclosed a debt of at least Rs 15,000 crore and sources said this was mainly on account of creating 100,000 towers.

RIL, which bought 95 per cent stake in Infotel for Rs 4,800 crore last week would be paying Rs 12,872 crore to the government towards pan-India BWA spectrum. It would also invest about a billion dollars for rolling out broadband services to attain a target of 100 million subscribers in five years, RIL top officials told analysts on Saturday.

The demand for telecom infrastructure is all set to increase in the coming months with new players coming in the 2G space as well as winners in the next generation 3G mobile telephony and the Broadband services, RCom said.

It was felt that enhanced independence and neuterality of the telecom infrastructure company will act as a significant catalyst for attracting these new tenants.

Post restructuring, the new entity would be in the form of a special purpose vehicle where others could pick up stake, sources said, adding that they did not rule even RIL acquiring stake.

"The interests of RCom as Infratels's continuing largest tenant will be protected through appropriate contractual arrangements," RCom said in a statement.

It said that the proposal would also lead to substantial unlocking of value for RCom's over two million shareholders.

RCom shares jumped 3.71 per cent today on the Bombay Stock Exchange to close at Rs 179 a piece.

This transformational proposal will be implemented through a demerger and/or other suitable value-creating options vis-a-vis Infratel's assets, subject to necessary approvals, with the consideration to be received in a combination of cash and stock, the company said.

via BS