Billionaire Ambani Agrees to Buy Sistema's Indian Phone Carrier

  • Deal marks start of consolidation in world's No.2 phone market
  • Combined entity to have about 118 million subscribers

Billionaire Anil Ambani’s Reliance Communications Ltd. agreed to buy AFK Sistema’s Indian wireless unit in an all-stock deal to create a carrier with 118 million subscribers in the world’s second-largest wireless market.

The Indian unit of the Russian company controlled by Russian tycoon Vladimir Evtushenkov will hold about 10 percent of the merged entity and pay off its existing debt before closing the deal, Reliance Communications said in a statement to exchanges. Sistema Shyam Teleservices’s equity stake will be valued at about $300 million, according to data compiled by Bloomberg.

The deal marks the start of consolidation in India where stiff competition between 12 carriers for more than 988 million subscribers has resulted in tariffs that are among the lowest globally. Sistema is India’s No. 9 operator with 8.44 million subscribers at the end of August, while Reliance Communications, the country’s fourth-largest carrier, had almost 110 million subscribers.

The Indian unit “was always a thorn in the side of the Sistema investment case with high perceived liabilities and carrying a negative $500 million redline in the net-present-value analysis,” Merrill Lynch said in a note to clients. “Net-net it looks like the project could end up in the black.” The bank’s analyst Denis Derushkin has a buy rating on Sistema’s stock.

Shares Rise

Reliance Communications’ shares rose 6.3 percent to trade at 80.05 rupees at 3:50 p.m. in Mumbai, compared with a 0.4 percent decline in the S&P BSE Sensex index, giving the company a market value of 200 billion rupees ($3 billion). Sistema was little changed in London. The companies have been in discussions since June.

Sistema will get as much as $300 million in additional cash from Reliance Communications if it’s able to sort out problems on fees with the government, according to the agreement. The Indian unit’s customer base has fluctuated from 8.5 million to almost 10 million over the past several quarters and the company has about $500 million in debt, a spokesman for the unit said in e-mailed comments. About 60 percent of Sistema’s Indian unit’s revenue comes from data services, said the spokesman.

The deal will make Reliance Communications the largest holder of the 800/850 megahertz band for wireless fourth-generation services. The company will pay yearly installments of 3.92 billion rupees to the Indian government for Sistema’s spectrum for the next 10 years, according to the statement.

Billionaire brothers Mukesh and Anil Ambani are also working on a partnership to share each other’s resources for Reliance Jio’s nationwide 4G phone networks after Indian regulations allowed operators to trade airwaves.

Sistema has invested more than $3 billion in Indian wireless assets since 2007 and holds about a 57 percent stake in the Indian unit. Minority shareholders will be given the option to exchange their shares for stock in Reliance Communications after the deal has been completed, Sistema said in a statement.

The company spent 36.4 billion rupees on wireless airwaves in 2013, securing coverage in eight regions including Kolkata and New Delhi. Many of its mobile-phone licenses and those of rivals were canceled the year before by India’s Supreme Court.

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