AFK Sistema could pay $3 bln for control over Indian operator Aircel - paper
MOSCOW. Sept 14 (Interfax) - AFK Sistema is close to a deal on acquiring control over the parent company of Aircel Communications, which commands 5% of the cellular communications market in India, the Economic Times reports, citing two unnamed sources.
According to the Indian paper, the price tag on the possibly soon to be announced deal is estimated at $3 billion.
Regulations in the telecom sector do not permit one communications operator to hold more than 10% of a competitor's stock, but in this case those restrictions are not applicable, since the target of the deal is a holding company registered outside India, the Economic Times writes.
Sistema's press office would not comment on the information for Interfax. An Aircel spokesman told The Times of India that he knew nothing of the deal.
SSTL said its priority was to clarify the issue with the frequencies auction and the outcome of litigation with the Indian government regarding the frequencies that were taken away in February.
Reports have said Sistema is looking at various options regarding its strategy in the Indian market following the withdrawal of the frequencies from SSTL. The options include negotiations with Malaysia's Maxis Communications, which owns 74% of Aircel.
Control of Aircel would bring Sistema 65 million cellular subscribers but would not solve the issue with SSTL's existing subscriber base of 16.6 million as the operators use different standards (GSM and CDMA, respectively).
A Sistema presentation published on Thursday said that the company was working on several deals involving mergers and acquisitions to the overall tune of $1.5-$2 billion. Company President Mikhail Shamolin said during a conference call that there are four projects worth $400 million each on average and one project worth upwards of $1 billion. He did not provide details.
India's Supreme Court on February 2 revoked 122 licenses to provide mobile services that were issued in 2008, including those of Sistema's Indian subsidiary, Sistema Shyam Teleservices (SSTL), for which the operator paid about $600 million. The court ruling was the result of an investigation launched in the second half of 2010 into violations in the distribution of frequencies.
Sistema proposed that the Indian authorities resolve the dispute within six months. Sistema believes the cancellation of SSTL's licenses violates an intergovernmental agreement between Russia and India to encourage and mutually protect capital investment.
The Indian Supreme Court decided in April to extend the term of the revoked licenses until September 7 and ordered the Telecom Regulatory Authority of India to hold auctions for new licenses by August 31. However, the conditions of the auctions were worked out only at the beginning of August and the regulator did not manage to hold a sale. As a result, the court ordered that the auctions be held by January 11, 2013, warning that it would not push back the deadline again. The revoked licenses will remain in effect until then.
The auction for GSM frequencies in the 1800 MHz band is expected to begin on November 12, and the auction for CDMA 800 MHz spectrum will take place two days after its completion.
Under the terms of the CDMA auction, new market players (who received licenses in 2008 or later), of which SSTL is one, will be able to bid for a maximum of three blocks (but at least two blocks) of frequencies with a width of 1.75 MHz in each of 22 districts. The starting price for one block of CDMA frequencies is INR45.49 billion ($817.3 million). Therefore, the minimum price for a pan-Indian set of CDMA frequencies (2.5 MHz) will be $1.6 billion. The GSM frequencies are priced at about a quarter less than the CDMA frequencies, but new players must bid for at least four blocks of 1.25 MHz. Therefore, the starting price for a set of 5 MHz for all of India will be INR140 billion ($2.5 billion).
SSTL head Vsevolod Rozanov said that the starting price in the auctions is inflated. SSTL believes the starting price for CDMA frequencies should be equivalent to their price at the 2008 auctions, when the starting price was INR3.44 billion ($62.5 million) for 1 MHz of spectrum.
Analysts said earlier that Sistema might leave the Indian cellular market because it would not want to pay such a high price for frequencies.
Sources close to Sistema said the company is considering various options for its operations in India, including bidding in auctions for frequencies only in the most attractive districts or an alliance with other players.
In the fourth quarter of 2011, Sistema wrote off $346 million on the SSTL licenses and $349 million in goodwill on the Indian subsidiary. Since it entered the Indian market, Sistema has invested $3.1 billion in SSTL.
There were 934 million mobile subscribers in India at the end of the first half of 2012, and mobile penetration was at 77%. SSTL, with 16.5 million subscribers, has a 1.5% share of the market by revenue. Aircel has 65 million subscribers.
SSTL had revenue of $81 million in the first quarter and a net loss of $105 million.
Sistema owns 56.68% of SSTL, the Russian Federal Property Agency owns 17.14%, and India's Shyam Group holds 23.98%. The Russian government became a SSTL shareholder in 2010, investing around $600 million.