Reliance Communications(RCom)-Aircel: a merger of equals?

Reliance Communications (RCom) and Aircel are likely to complete the merger of their wireless operations by the end of this month, a Reliance Group official said last week. The investors are losing patience. The companies had begun discussions about 6 months ago, and RCom shares have fallen by 45 per cent since then.

In the time being, RCom’s competitive position has considerably degraded, and threatens to fall further due to the last month disruption caused by withdrawal of CDMA services. Aircel appears to be in a far better position, in accordance with the revenue market share.

Between July-September 2015, according to data collated by the Telecom Regulatory Authority of India (Trai), RCom had a stand-alone revenue market share of 5.49%. Its share fell to 4.96% in between January-March 2016.

RCom’s revenues have fallen sharply in 5 circles where it didn’t bid for renewal spectrum in the 900 MHz band in the auction held in March 2015. As a consequence, it discontinued 2G services and made an attempt to move customers to its 3G network. In the last two quarters, the company’s revenue market share in these 5 circles has almost halved from 8.3 per cent in the September quarter to 4.2 per cent currently.

Chances of survival for the two companies are bleaker as they are bit players in most of the circles they operate. An analyst with a domestic institutional broker said that when two companies which are heavily indebted come together, it’s recklessly bold to expect the outcome to be really good.

To be sure, both RCom and Aircel have reportedly come to a decision that they shall only bring a portion of their existing debt into the joint venture(JV).

A question which arises is what shall happen to the remaining debt. In case of Aircel, while it has raised money by selling spectrum, it’s still not clear what it plans to do with the debt which is remaining.

However, things will definitely get clearer if and when the two companies announce the terms of their deal, along with the financial details of their wireless operations.

Till then, as investors have culminated, it is best to stay on the sidelines.

A writer by day and a passionate reader by night. Writing just doesnot fill my pocket but it also fills my heart. With over 4 years experience in Stock Market, I am a full time content writer with www.dynamiclevels.com