Reliance Communication may benefit from Sistema's spectrum; stock slips

MUMBAI: Reliance Communications Ltd (RCom) slipped 2 per cent in intraday trade after rising nearly 3 per cent in early trade on Tuesday, after the Anil Ambani-owned company and Russian conglomerate Sistema said that they are in exclusive talks to merge their Indian telecom businesses through a stock swap.

The possible merger with Sistema Shyam TeleServices (SSTL) can help the debt-ridden Reliance Communications with access to spectrum, say analysts.

Russia's Sistema has entered into exclusive talks for a potential merger between its Indian telecom business SSTL and RCom through a stock swap, the Indian telecom major said in a filing post market hours on Monday.

"The discussions are indicative and non-binding in nature, and remain subject to due diligence, definitive documentation and approvals, as may be necessary," RCom said in a statement Monday.

"There is no certainty that any transaction will result," the statement added.

"It is extremely important news from the point of view of RCom shareholders. RCom's spectrum licence will expire sometime in 2017, whereas the Sistema's licence in India, which they have paid for partially and acquired one-one and a half years back, is there for 20 years," said Sudip Bandyopadhyay, President, Destimoney Securities in an interview to ET Now.

"So, the access to spectrum through this acquisition or merger will be invaluable for RCom. The spectrum prices have significantly moved up since the last auction. This is an interesting move on the part of RCom," he added.

Analysts are of the view that RCom doesn't have too many choices left in the market.

Piyush Jain of MorningStar is of the view that RCom needs funds to invest in infrastructure and partners as there is increased competition from large players.

RCom has high debt and Sistema has unutilised spectrum and few clients. RCom cannot spend money on buying additional spectrum, especially at higher cost subsequently in next year whenever the next round happens. It is going to be competing against large players who are getting stronger by the day.