RCom to lease out telecom towers to Reliance Jio in Rs 12,000-cr pact

Mumbai: The Ambani brothers are getting closer, firming up on Friday a Rs 12,000-crore telecom tower deal. Anil Ambani promoted Reliance Communications will lease some 45,000 mobile masts to Reliance Jio Infocomm, run by his once estranged brother Mukesh.

Prelude to 4G

The latest deal with RCom is one of the several arrangements being put in place by Mukesh Ambani’s Reliance Industries to launch fourth generation, or 4G, telecom services next year

via Reliance Jio Infocomm.

Reliance Jio has pan-India licences to launch 4G services which, once deployed, will enable users to download a 10-megabyte piece of software in two seconds, and a two-gigabyte HD movie in minutes.

Reliance Jio will use 45,000 of RCom’s 50,000 ground and rooftop-based towers so that the rollout of 4G services can be accelerated, the two companies said in a press statement.

The deal will increase RCom’s average tenancy ratio, or tenants per tower to 2.7 per cent from 1.7 per cent, market sources said. The deal is said to be part of an ongoing ‘comprehensive framework of business co-operation’ between Reliance Industries and RCom.

The first commercial accord between the two firms was signed in April when RIL agreed to use RCom’s fibre optic network for a one-time payment of Rs 1,200 crore.

Interestingly, this time around, the companies have chosen not to disclose the tenure of the engagement. All they have said is that the deal is valid ‘for the lifetime of the agreement’. Company executives, who declined to be identified, say the two companies have contracted for 15 years.

Validity

Reliance Industries will pay an average of Rs 800 crore a year, but the payout in the first few years will be around Rs 200 crore, they said.

The broadband wireless access licence won by Infotel Broadband, and later acquired by RIL, is valid for 20 years starting 2010.

“RIL is known to be a tough negotiator. Since the company had not disclosed the tenure of the engagement, in all probability RIL would have got a good deal on the valuation side. However, the deal is good news for RCom as it will help it reduce debt and stabilise cash-flows,” said Alok Shende, Principal Analyst, Ascentius Consulting.

As on March 31, 2013, RCom had a net debt of Rs 38,864 crore. A deal with Reliance Jio, which means assured business, increases the chances of RCom finding a strategic investor.

Brokerages too are taking a cautious view on the RIL and RCom stocks as no details are available on the deal. “We continue to remain neutral on the stock as of now and wait for clarity on the nature of payments, rentals, etc,” Angel Broking’s Telecom Analyst Ankita Somani said in a research note.

The Reliance Industries scrip closed down 0.97 per cent at Rs 784.6 on the BSE, while the RCom ended at Rs 116.1, 1.1 per cent lower than Thursday’s closing price.