Reliance Communications, the debt-laden telecom signed an agreement to sell Reliance Jio Infocomm its wireless assets for nearly 240 million rupees or $3.75 billion, said two sources close to the matter on Friday.
Late Thursday the two firms announced that Reliance Communications which is backed by Anil Ambani, would sell its fiber optic, spectrum tower, and other infrastructure assets for telecom to Jio, owned by Reliance Industries, which is controlled by the elder brother of Anil Ambani, Mukesh Ambani, the richest person in India.
This sale, if finalized, would be a huge step forward in the quest by RCom to cut debt, which has helped weigh down it shares earlier in the year to record lows and led its creditors like the China Development Bank to begin insolvency proceedings due to missed payments.
As of October 31, RCom net debt was 450 billion rupees putting it amongst the most indebted businesses in India. Shares of RCom soared by almost 30% Friday, while Reliance Industries stock moved higher by 0.9%.
This sale would mark a return of telecom operations for Reliance Industries, which entered the telecoms industry in 2002, backed by the elder Ambani, using the name Reliance Infocomm Ltd.
In 2005, the two brothers had a feud that led to Reliance Industries being split, and Mukesh kept the gas and oil business that was a cash cow and Anil walked away with power and telecoms.
However, with his launch of Jio during September of last year Mukesh re-entered telecoms space that upended the sector with its free voice and cut price data service and pushing RCom into a big debt spiral.
Analysts are saying the deal would be beneficial to both Ambani brothers, allowing Jio an expansion of its footprint in the cutthroat telecoms sector of India, while paring debt for RCom.
Earlier this week, Anil said that the wireless provider would seek to slash its debut by more than 390 billion rupees, including through asset sales, sparking a rally of shares of RCom, which have more than doubled since news was first released of the plan.
Analysts with Morgan Stanley said this deal would give Jio the ability to expand further into the telecom space in India, though it adds to debt the company will hold.
The entry by Jio has hit the profits of competitors like Bharti Airtel Ltd, the largest wireless carrier in India, and Vodafone Plc’s India unit, while sparking a number of consolidations across the sector.