R-Com to acquire Sistema

Reliance Communications Ltd. is acquiring Sistema Shyam Teleservices Ltd Wireless business for equity worth Rs. 2,100 crore. It has also committed to paying Sistema liabilities to the government, the present value of which is Rs. 2,400 crore. R-com has paid three times Sistema annual revenues of Rs. 1500 crore.

This is much higher than Bharti Airtel Ltd and Idea Cellular Ltd enterprise value of sales valuation of around 2.2 times. While these companies have operating profit margins of over 30%, Sistema reported operating losses were over 30% of its revenues. Sistema holds 800 Mega Hertz spectrums in eight key circles, which can be extremely valuable for Reliance Jio.

Sistema will be launching its LTE Services, including voice over LTE, with much wider coverage, vis-à-vis spectrum in higher frequency bands. Sistema holds spectrum in lucrative circles such as Delhi, Gujarat, Tamil Nadu, Karnataka and Kolkata. Sistema spectrum in these eight circles is worth Rs. 7,955 crore. Not all of this will necessarily flow into R-com books, even if Reliance Jio agrees the price.

This is because the government spectrum trading guidelines includes a clause that states that for any spectrum acquired in the March 2013 auction trading will be permitted only if the price differential the latest price auction price is paid.

Reliance Infrastructure acquires Pipavav Defence

Reliance Infrastructure Ltd., formerly known as Reliance Energy and before that as Bombay Suburban Electric Supply is India’s largest private sector enterprise power utility. It is part of the Reliance Anil Dhirubhai Ambani Group, one of India’s largest conglomerates. The company is the sole distributor of electricity to consumers in the suburbs of Mumbai. It also runs power generation, transmission, and distribution businesses in other parts of Maharashtra, Goa, and Andhra Pradesh.

Reliance Infrastructure, through its subsidiary Reliance Defence Systems Pvt. Ltd., will acquire 130 Million equity shares from the promoters of Pipavav Defence at a price of Rs 63 per share. After the acquisition, Reliance Defence Systems will make an open offer to acquire an additional 26% stake in the company from public shareholders at Rs 66 per share. JM Financial Institutional Securities Ltd will be the sole financial advisor and the manager to the open offer.

Pipavav Defence is the India first world class integrated Defence production, ship building and offshore infrastructure company. It is the country’s first private sector company to get the license and contracts to build frontline warships for Indian Navy. It has one of the world’s largest infrastructure facilities. It is spreads over 841 acres of land on the Gujarat coast and has India’s largest and one of the world’s largest dry docks, measuring 662 meters in length and 65 meters in width.

India is one of the largest spenders on defence equipment. According to government estimates, the cumulative defence budget, consisting of capital and revenue expenditure, has increased 32% between fiscal 2011 and fiscal 2014 to Rs 2.04 Lakh crore. About 70% of India’s defence requirements are met through imports and the rest through local production by state owned companies.

Big Cinemas sold to Carnival

Big cinemas is a division of Reliance MediaWorks Ltd and a member of Reliance ADA Group is a theatre chain with over 515 screens in India, US, Malaysia, and the Netherlands. As of July 2014, the company has 280 screens in India. The company accounts for 10% t0 15% of box office contributions of large movies.

On Monday, December 15, 2014, Anil Ambani led Reliance Group has sold its multiplex business to South India based Carnival Group in the largest ever deal in this space. The transaction will reduce Reliance Capital overall debt by Rs 700cr and is part of Reliance Capital’s strategy to exit minority investments. The deal will make Carnival the third largest multiplex operator with nationwide presence and over 300 screens.

The firms did not disclose the exact value of the deal. The deal stuck between Carnival Cinemas and Reliance MediaWorks, will exclude IMAX Wadala and some other properties worth Rs 200cr. Reliance capital is the parent firm of Reliance MediaWorks, which operates one of the largest cinema chains, under the brand ‘BIG CINEMAS’ with over 250 screens in India.

Carnival group is targeting to achieve 1000 screens by the year 2017. The transaction between the two will be completed within the current financial year. Reliance capital will retain an option to acquire a stake in pre-IPO stage at an appropriate discount whenever carnival goes a listing. Reliance capital had recently announced its plans to focus on core business and is in the process of encashing its minority investments. The company is in talks with 2-3 international investors to sell its 16 percent stake in leading travel portal Yatra.com for an estimated 500cr.