Reliance ADAG's Reliance Communications is the only operator in India to hold 5 MHz or of the most valuable 800-850 MHz band spectrum. The company is in advanced stage of discussions for finalising nationwide trading and sharing arrangements in the 800-850 MHz band and reciprocal agreements for roaming by respective customers on each other’s networks.
These arrangements will facilitate RCOM's customers to access Reliance Jio's 4G/ LTE networks on an asset-light and minimal capex model, while Reliance Jio's customers can fall back on RCOM's extensive 2G and 3G networks.
Nitin Soni of Fitch Ratings says this is on expected lines. "Jio and RCOM's spectrum sharing or trading was and is very likely. It is not very surprising that they are in advanced stages of sharing their spectrum in the 800 MHz band," he told CNBC-TV18. According to him, it is very important for Jio to have access to the contiguous 800 MHz spectrum in the overlapping 10 circles where it does not have that kind of a spectrum. It is also credit positive for RCOM given that it has USD 6 billion of net debt on its balance sheet.
Below is the verbatim transcript of the interview..
Mangalam: First up, what do you make of the news that have just come in or the comments that have come in from the AGM of Reliance Anil Dhirubhai Ambani Group (ADAG)?
A: This is on expected lines and we have been saying that Jio and RCom's spectrum sharing or trading was and is very likely and it is not very surprising that they have indicated that they are in advanced stages of sharing their 800 megahertz band. Remember RCom is the only one which has contiguous spectrum on a pan India basis in 800, Jio has 10 circles and it is very important for Jio to access that contiguous 800 mhz spectrum in the overlapping 10 circles where Jio does not have access to that kind of spectrum. Credit positive for RCom given that it has about USD 6 billion of net debt on its balance sheet. It is rated BB minus and it will give some cash inflow for RCom in terms of some spectrum sharing and also the monetisation of Infratel ownership.
Ekta: How much of pressure could Reliance Communication see of easing in terms of their balance sheet because of this or potential?
A: It is very difficult to give a number on spectrum sharing because that is something which is negotiated between these two companies but it could be a large amount and only a combination of monetisation can relieve pressure because I believe the monetisation number of Infratel would be much larger because if they are selling a substantial stake in Infratel is actually a significant part of their overall EBITDA generation Infratel is about easily 40-45 percent of their EBITDA and that would be a significant amount.
Reema: You indicated right now Reliance Communications rating for you all is BB minus. If they do actually sign this spectrum sharing with Reliance Jio would it then result in you upgrading your rating on Reliance Communication or would it take more than that?
A: Yes, we have a guidance of four times on their net debt to EBITDA and if it falls below four times as a result of the monetisation of these assets then there is a possibility that we can upgrade the ratings. Right now the ratio is about 4.5 or 4.6 times. So, depending on what is the number they are going to realise from these sale of assets and spectrum sharing. Then there is a possibility to upgrade the ratings.
Reema: So, which means if it is currently just 4.5 or 4.6 and if it comes down to below four there is a possibility of ratings upgrade. Do you think spectrum sharing can do it. Give us a sense of how much money could Reliance Communication get because of this spectrum sharing keeping in mind that they will have to liberalise part of their spectrum? Any at ballpark.
A: It is really difficult to me to quantify this number because they will have to pay something to the government to liberalise the spectrum as well and also I would believe evidence from their earlier sharing with Jio that they could have some kind of infrastructure sharing in lieu of this spectrum sharing as well. So, there could be a combination of this arrangements with Jio on this spectrum sharing. So, I am not really sure whether there would be any actual money inflow because of the spectrum sharing because this is the overall positive for the company in general but I am not really sure what kind of money they will generate from this but Infratel will be significant. Infratel is - separately monetisation of tower assets will be significant.
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