Sistema-Reliance Communications deal may be stalled

A fruit seller in Ahmedabad's Old City. India is one of the world’s fastest growing markets for mobile phones.

A fruit seller in Ahmedabad's Old City. India is one of the world’s fastest growing markets for mobile phones.

Meena Kadri (Flickr)
Sistema continues to face legal hurdles in India.

The potential merger of one of India’s biggest telecom operators Reliance Communications (RCom) and Sistema Shyam TeleServices (SSTL) owned by Russian diversified holding AFK Sistema may be stalled with the transaction terms deteriorating, documents released by AFK revealed.

The Russian company made a decision on the merger in the autumn of 2015 and signed the respective papers.

The signed documentation provides for the demerger of the telecommunication business from SSTL and its merger with the telecommunications business of RCom based on a merger scheme to be approved by Indian courts. 

As a result of the merger, SSTL will acquire and hold a 10 percent equity stake in RCom.

Following the completion of the transaction, RCom will take responsibility for payment of SSTL's frequency spectrum licensing fees payable by installments to the Department of Telecommunications of India.

In March, an Indian court delivered a positive judgment regarding lifting of the frequency content surcharge for SSTL, though India’s Department of Telecommunications appealed the decision in the country’s Supreme Court.

Despite two hearings of the case (in July) no decision has been made regarding the issue yet, while the next hearing is scheduled for October 19.

“Even in case of the court victory and given the obvious facts in our favor the procedure of the hearing in the Supreme Court itself is being stalled for an uncertain period of time, which may complicate SSTL’s business and increase the timescale as well as worsen the terms of implementation of the consolidation transaction with RCom,” AFK said.

Earlier the company said it expected the deal to be closed in the second quarter of 2016, later the deadline was postponed to the third quarter.

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