RCom-Brookfield deal: Investors see no upside
Reliance Communication's deal with asset management group Brookfield Infrastructure to sell its tower business hardly excited any investors. Attempting to reduce its debt burden by a whopping $4.6 billion, nearly 70% of the company's debt would be pruned. This failed to impress investors since its market capitalization rose only Rs.200 crore after the deal, considering its market cap fell by Rs.13,000 crore this year.
Reliance Communications
Reliance Communications is an Indian internet and telecommunications company based in Mumbai. Headed by Anil Ambani, the company was launched in 2002 and has since grown to touch nearly 99 million million subscribers this year. Pitched to be the fourth largest telecom company in the country, RCom garnered Rs.220 billion in revenues and Rs.7.14 billion in profits last year.
Brookfield Infrastructure Group
Brookfield Infrastructure is an investment and asset management company headquartered in Canada. With assets of over $250 billion under the company, the group had expressed interest in acquiring RCom's tower business.
Reliance Communications' rising debts
With India's corporate giants slipping to massive debts, Reliance Communications' debts saw the company become the most indebted telecom operator in India. With debts amounting to Rs.41,362 crore, the company is one of the most leveraged in India. Reliance Communications has been eyeing deals and partnerships with other groups to de-leverage the company's huge debts and gain investor confidence.
Reliance Communications inks deal with Brookfield
In October this year, Reliance Communication signed a deal to sell 51% of its stake in the mobile tower business to Brookfield Infrastructure Group for Rs.11,000 crore in cash payment. The Anil Ambani-led company retained the remaining 49% of the company. The deal was part of Reliance Communication's efforts to restructure the company to help reduce the heavy debt burden.
RCom's gloomy market capitalization offers no respite
"It is evident investors aren't factoring in an upside from the retained stake; after all, RCom's market value hasn't changed dramatically and still is only around Rs.8,900 crore," said an analyst.
