Proposed Rs 50,000 Crore deal to merge telecom tower assets of RCom's subsidiary, Reliance Infratel with GTL Infrastructure fails to materialize

The planned proposal that would have seen Reliance Infratel and GTL Infrastructure merge has failed to materialize, the two firms announced. With the announcement, Reliance Communications shares declined while GTL Infrastructure shares overcame the losses it had experienced earlier to peak on the green on the Bombay Stock Exchange.

The two firms reported Tuesday that the proposed Rs 50,000 crore investment deal that would have resulted in the merger of Reliance Infratel’s telecoms tower assets with GTL Infrastructure would not be attained. Analysts however termed the failure as expected, arguing that the deal was overvalued and the large debt in the balance sheets of Reliance Communications was a major concern for GTL Infrastructure.

The deal was expected to enable RCom cut down on its Rs 33,000 crore debt by about Rs 18,000. However, speculation was rife that RCom is already on the hunt for other potential investors for the sale of Reliance Infratel’s assets. But even as RCom searches for other potential investors, it is not known what motivations were behind the flop of the deal.

The failure comes after the two firms failed to reach an agreement in the time schedule stipulated, as well as the expiry of the non-binding term sheet they signed in June, at the end of August, read a filing to the market by GTL Infra. In spite of efforts to sustain the deal, both firms have neither extended the Term Sheet nor entered into any definitive transaction agreements as envisaged therein, further read the statement.

As a result of that, the merger plans as had been originally outlined will not take place, declared the statement. However, Reliance Communications was quick to point out that it has commenced talks with a number of strategic and financial investors, to pursue a similar transaction targeted at considerable reduction in its debt.

Other than debt reduction, the potential investors might as well enable RCom unlock value for its shareholders from the passive infrastructure and related assets in 95% owned subsidiary, Reliance Infratel. Previously, RCom had also floated the idea of an initial public offering for Reliance Infratel, but nothing has come of that yet, ever since the merger plans were hatched.

As per the proposed deal, GTL and RCom had agreed to have a merged entity which would have over 80,000 towers and over 125,000 tenancies from over 10 telecom operators.

7 Sep 2010.