Anil Dhirubhai Ambani led Reliance Communications Ltd. and Sistema JSFC, on Monday announced the signing of definitive documents for demerger of Sistema’s Indian wireless business, carried on by Sistema Shyam Teleservices Ltd. (SSTL) under the MTS brand, into RCOM.
 
RCOM will acquire approx 9 million customers and approx Rs. 1,500 crore of annual revenues by virtue of the transaction.
 
In addition, RCOM will acquire SSTL’s most valuable and superior 800 / 850 MHz band spectrum, ideally suited for 4G LTE services, to complement its own unique nationwide footprint of minimum 5 MHz contiguous 800 / 850 MHz spectrum aggregating 148.75 MHz
 
This will extend the validity of RCOM’s spectrum in 800 / 850 MHz band in 8 important circles by a period of 12 years from 2021 till 2033 (Delhi, Gujarat, Tamil Nadu, Karnataka, Kerala, Kolkata, UP (West) and West Bengal).
 
As result of the demerger, SSTL will acquire and hold a 10% equity stake in RCOM. In addition, RCom will assume the liability to pay the DoT instalments for SSTL's spectrum, amounting to Rs. 392 crore per annum for the next 10 years.
 
Prior to Closing of the Transaction, SSTL intends to pay off its existing debt. An appropriate payment / earn-out mechanism has been agreed in relation to disputed spectrum contiguity charges claimed by DoT.
 
“We are delighted to welcome Sistema Shyam TeleServices Ltd. as a valued shareholder and partner in Reliance Communications Ltd. The combination of our wireless businesses, through the demerger of SSTL wireless business into RCOM for stock consideration, will generate significant capex and opex synergies for mutual benefit,” said Gurdeep Singh, President & Chief Executive Officer, Consumer Business, Reliance Communications.
 
“The Indian data market is witnessing explosive growth, and SSTL's proven strengths in that space will further enhance RCOM's capabilities in delivering a superior experience to our valued customers. We are pleased that the addition of SSTL's valuable spectrum holdings in the 800 - 850 MHz band will strengthen RCOM's spectrum portfolio, and extend our ability to provide world class 4G LTE services to our customers in 8 important circles in the country till the year 2033,” added Gurdeep Singh.
 
“The merger of SSTL and RCOM's telecom businesses is a milestone event. Despite the numerous challenges the sector faced in recent years, the combination of two leading data service providers is a clear sign of progress for the Indian telecom industry. We are confident that SSTL’s entry into the equity capital of RCOM as a strategic investor will strengthen the competitive position of the combined company and provide subscribers with superior experience by fast tracking the growth of LTE technology in India,” said Mikhail Shamolin, President and CEO of Sistema.
 
Moreover, we believe the completion of this transaction will serve as an example of growing business ties between Russia and India and encourage other investments between the two countries,” added Mikhail Shamolin.
 
“We believe this transaction underscores SSTL’s track record in building the fastest-growing data services provider. This is an exciting new chapter for India’s telecom industry and we look forward to leveraging our companies’ combined experience for the development of LTE in India”, said Sergey Savchenko, CEO of Sistema Shyam TeleServices Ltd.
 
The Closing of the transaction, expected in the second quarter of 2016, is subject to customary conditions precedent, including inter alia applicable corporate, regulatory and other approvals.
 
Post Closing of the deal, minority investors of SSTL will be given an option to exchange their shares in SSTL with the pro-rata RCOM shares held by SSTL.