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RCom to issue shares to MTS, to pay earn-out fees in case of 4G conversion

Reliance Communications said it the company’s board has approved the issue of fresh shares in the company to the shareholders of Sistema Shyam Teleservices Ltd, which operates the MTS brand of telecom services in India.

RCom’s merger with MTS received the government’s approval a few days ago.

Since companies in India can get an extension of the validity of their spectrum free of charge by acquiring other companies with ‘newer’ spectrum, RCom said the deal has resulted in the extension of the validity of its spectrum in eight circles by 12 years.

RCom will acquire the telecommunications business of SSTL including its licenses and 30 MHz of 850 MHz band spectrum, suited for 4G LTE services and other evolving technologies.

“This will result in extension of the validity of RCOM’s spectrum portfolio in the 800 / 850 MHz band in eight important Circles (Delhi, Gujarat, Tamil Nadu, Karnataka, Kerala, Kolkata, UP-West and West Bengal) by a period of 12 years—from 2021 to 2033,” it said.

In addition, RCOM will assume the liability to pay the DoT, instalments for SSTL’s spectrum, amounting to Rs 390 crore per annum for the next 8 years.

MTS STATEMENT

MTS also issued a statement, saying that it now owns 10% of RCom. Its shareholders can, it said, opt to convert their indirect holding into a direct holding by tendering their shares in SSTL in lieu of RCom shares.

It also said SSTL will get milestone payments from RCom in case its spectrum is put to use for 4G.

“If the Department of Telecommunications and the courts of India confirm that SSTL’s spectrum can be used for deployment of the 4th generation networks without any additional payments, SSTL may become entitled to an earn-out payment from RCom,” it said.

“”SSTL now owns a 10% equity stake in RCom following a new share issue of the Indian operator. In accordance with the approved transaction structure, SSTL’s minority shareholders will have the right to convert SSTL shares into RCom shares in proportion to their equity stakes in SSTL as part of a tender offer to be announced by the end of January 2018,” it added.

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