RCom in talks to buy Sistema's India unit

Reliance Communications (RCom), India's fourth-largest telecom operator, today said it is in exclusive discussions with Russia's Sistema on a potential merger between the Indian telecom business of Sistema Shyam TeleServices Ltd (SSTL) and RCom through a stock swap.

Separately, the Russian conglomerate Sistema JSFC also said it has entered into exclusive discussions with Reliance Communications on a potential merger between its Indian telecom business, Sistema Shyam TeleServices Ltd (SSTL) and the Anil Ambani group telecom firm, through a stock swap.

The discussions are indicative and non-binding in nature, and remain subject to due diligence, definitive documentation and approvals, as may be necessary.

There is no certainty that any transaction will result, Sistema and RCom stated in separate releases.

Sistema's billionaire owner Vladimir Yevtushenkov had in May said he had held talks with Reliance Communications about a possible joint venture in India. But merger talks were held up because of a lack of clarity in government rules.

While the telecoms sector in India got crowded over the past few years, consolidation has been held up as acquiring companies needed to pay the government market value for the target's airwaves not bought in auctions.

Sistema has spectrum in nine of the country's 22 telecom circles and a merger would give Reliance Communications access to Sistema's airwaves in these nine circles, without a significant payout as most of its airwaves were bought in competitive auctions.

Sistema Shyam Teleservices is one of the market's smallest players with nearly 10 million customers and less than a 1 per cent market share. Against this, Reliance Communications has 33.7 million data consumers, including 17.4 million 3G customers.

Sistema and Russia's government together own nearly 74 per cent in the unlisted Sistema Shyam joint venture, while India's Shyam Group has a 24-per cent stake. The rest is owned by individual Indian investors.

Sistema Shyam TeleServices operates its telecom services under the MTS brand in India.

The unit scaled back operations in 2013 when it had to buy new telecommunication permits after its earlier permits were cancelled by the Supreme Court in an order linked to a broader licensing scandal.

The announcement comes days after elder brother Mukesh Ambani set December deadline for launching his 4G phone services.

Sistema is a publicly-traded diversified holding company in Russia and the CIS, which invests in and is a major shareholder of companies serving over 100 million customers in the sectors of telecommunications, high technology, radars and aerospace, banking, retail, mass-media, tourism and healthcare services.