India's Richest Man Bails Out Brother Fueling Record RCom RallyBy and
RCOM shares have tripled this month on debt reduction plan
Spectrum, fiber network, towers included in disposals
Shares of Anil Ambani’s struggling wireless carrier extended this month’s heady run-up after his billionaire brother Mukesh agreed to buy the company’s spectrum, mobile-phone towers and fiber assets, providing a cash infusion that will be used to help stave off insolvency.
The stock surged as much as 35 percent on Friday in Mumbai, having more than tripled in just two weeks amid speculation that Ambani had secured agreements to sell enough assets to repay debt. It closed 17 percent higher at 36.15 rupees, with trading volume more than eight times the three-month average.
Mukesh’s own wireless venture, Reliance Jio Infocomm, emerged the highest bidder for the assets and the sale is expected be closed by March, Reliance Communications Ltd. and Jio said in separate statements on Thursday, which coincided with the group founder Dhirubhai Ambani’s birthday. The companies didn’t disclose a value for the transaction.
RCom said earlier this week it expects to fetch about 250 billion rupees ($3.9 billion), all of which would be used pay down loans. The carrier had total debt of 450 billion rupees as of October-end, and it aims to pare that to 60 billion rupees, Ambani told reporters on Tuesday.
Shares of other companies in the Anil Ambani Group also rose. Reliance Capital Ltd. rose to the highest price in almost two months, while Reliance Power Ltd. surged 12 percent to a eight-month high. Reliance Naval and Engineering Ltd. increased for the eighth day in the longest winning run since September.
For Jio, the acquisition would help “bring synergies and lower costs” because the company already pays to use RCom’s spectrum and fiber, and is one of the largest tenants for use of its towers, paying as much as $250 million a year, analysts at Morgan Stanley led by Mayank Maheshwari wrote in a note.
The bailout marks the return of the telecom company back to the fold of Reliance Industries Ltd., which entered telecom in 2002. A feud between the two brothers in 2005 led to the split of Reliance Industries when Mukesh kept the oil and gas business and Anil walked away with telecom and power.
The brothers agreed to a rapprochement after a nudge from India’s Supreme Court couple of years later when they sought its intervention in a deal for supplies of natural gas from the nation’s largest gas field.
They called truce and became competitors in the telecom business after Mukesh made a splashy entrance last year. It was then that RCom agreed to share its spectrum, networks and towers with Reliance Jio, in a move that Anil referred as a “virtual merger.”
“Twelve years after an acrimonious family separation that saw Reliance demerge its telecom business into RCom, the bulk of these assets are headed back," Jefferies Group LLC analysts lead by Somshankar Sinha wrote in a note. They estimate fair value for the assets at between 240 billion and 290 billion rupees, but noted that Reliance may pay less.
RCom posted its first annual loss after Jio stormed into the market by offering free calls and data. That escalated a price war that’s forced consolidation in the sector. Creditors including China Development Bank and the Indian unit of network-equipment maker Ericsson AB have sued RCom, seeking to compel repayment by RCom.
Earlier this month, a public-relations firm became the latest to ask a tribunal to place RCom under insolvency proceedings after it failed to pay dues.
— With assistance by Bhuma Shrivastava, and Lee J Miller