A demerger of Reliance Infratel has been proposed by Reliance Communications. Rcom plans to realign the ownership of this subsidiary by means of demerger or any other options. The proposal to realign the company was made as move to create the world’s biggest and independent telecom infrastructure company which is not controlled or owned by any player in the telecom sector. This proposal was approved by the Broad of directors of the Reliance Infratel and Reliance Communications on Monday.
The implementation of the proposal is dependant of securing necessary approvals and after the receipt of consideration which would be a misx of stck and cash. Other than the demerger route, Rcom is also considering any other appropriate value creating alternatives to implement the proposal. There are discoussion being carried out with several internatonal and doemstiic finanfical compaies by both Rcom and Reliance Infratel in order to finalize the proposal. An announcement of a transaction is anticipated to be released soon.
Anil ambani, the Chairman of Reliance Communications has stated “Our transformational initiative of creating the world’s largest independent telecom infrastructure company will facilitate efforts of new telecom players to achieve the most extensive and fastest nationwide rollout in the most cost-effective manner. 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. I am delighted that this endeavour will greatly benefit Reliance Communications through substantial debt reduction and enhanced financial flexibility.”
The recent developments taking place in the Indian telecom sector which includes the most probable and likely demand in the future for proper telecommunications infrastructure pan-India by the winners of the 3G auction and the BWA action and the existing 2G players are facts that the boards of both the companies have taken a note of. Acting as a major catalyst would be the increased neutrality and independence of the telecommunications infrastructure companies for attracting new tenants.
Necessary steps would be taken to protect the interests of RCom, the biggest tenant of Reliance Infratel. These steps would include apt contractual agreements thus facilitating the process of consolidation in the telecom infrastructure sector. The board felt that this would result on operational synergies, increased productivity, better utilization of assets and thus leading to scale benefits.
The introduction of cash due to the demerger is likely to result in tremendous value for the share holders. This would in turn lead to the considerable reduce of the combined debt and would also improve the leverage ratios for Reliance Communications there by leading to increased monetary flexibility for them. This would also contribute to receiving the other part of the consideration in stocks. All these actions would enable RCom’s continued involvement in the future scenarios and opportunities in the telecom infrastructure sector.
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