In a move that can bail out financially stressed Reliance Communications (RCOM), the company has sought tweak in the current guidelines on cross-holding. Existing norms do not permit a company to own more than 10% equity in two different Operators in a circle.
RCOM wrote a letter to IMG on 4th July, asking it to do away with the 10% cross holding norm. The cross-holding norm was introduced to ensure a healthy competition in the market.
If allowed, the Anil Ambani-owned company would be able to sell its equity to the existing operators.
Presently, the telecom sector is passing through a financial crisis. There is a huge combined debt of more than Rs 4.5 lakh crore on the mobile operators. RCOM has a debt of more than Rs 42,000 crore, while its EBITDA is about Rs 4,600 crore. The government has set up an inter-ministerial group to address the issue of financial stress of the telecom companies.
In such a situation, only two companies are in a position to buy RCOM’s equity – Bharti Airtel, which is market leader, and Reliance Jio. In last couple of years, Bharti has bought spectrum from Vodafone, Aircel, Tikona and Telenor.
Presently, Airtel is exploring possibility of buying Tata Group’s telecom businesses. “There is no question of Airtel buying equity in RCOM,” said an industry observer. “RCOM has already committed its spectrum to Jio. Moreover, the two companies have very different management culture.”
Reliance Jio is the only player that can buy equity in RCOM. It will help the company as it will get control over whole spectrum of RCOM.
Merger and acquisition norms do not allow the merged entity to hold more than 25% total spectrum allotted in a circle. In case of a specific band, this ceiling is 50%. Even in the case of proposed Idea Vodafone merger, the combined entity will have to surrender spectrum in some circles due to spectrum cap.
If Jio buys equity in RCOM, the two companies will continue to exist as separate entities. Hence Spectrum cap norm will not be applicable on them.
It will give further lease of life to RCOM. It will get time to set its house in order and sell its properties to ease debt burden.
Interestingly, RCOM sought removal of the cross-holding norms in 2007, when it wanted to enter into the GSM services. Later, the government allowed dual licences that enabled it to offer GSM services along with its CDMA-based mobile telephony.