A recent report out of India says “only a miracle can now save mobile operator Aircel”.
Perhaps, the miracle will be in the form of India’s richest man, Mukesh Ambani.
He is also the man who owns Reliance Jio, the mobile company that stormed into the market last September and intensified competition with its disruptive pricing.
From nowhere, Jio has won the hearts of Indian households with its unprecedented free voice and data offerings and was the fourth-largest player with 160 million subscribers as at the end of last year.
Bharti Airtel Ltd is in pole position with 290 million customers, followed by Vodafone (212 million), Idea Cellular - in which Axiata Group Bhd has a stake - with 196 million in third place and Aircel in sixth place with 84 million customers in a market where there are 1.17 billion mobile subscribers.
By October, Mukesh has ambitions to cover 99% of India’s population and that signals challenging times for all the players, with some smaller players even standing a chance of being trampled.
Aircel is reeling in the pain of intense competition.
Malaysia’s third-richest man, T Ananda Krishnan, first bought into Aircel in 2005.
In fact, it was such a major coup for Maxis Communications Bhd (MCB) back then to announce the deal in a hurriedly called press conference on the last day of 2005. Those announcing the deal were pleased that MCB had got into one of the most promising mobile growth markets.
MCB paid US$800mil for a 74% stake in the Chennai-based Aircel. It was a leading player in Tamil Nadu then.
The remaining stake of 26% was held by India’s Sindya Securities and Investments.
Five years later, billionaire Ananda decided to take MCB private in a RM16bil deal. He separated the local operations and parked it in Maxis Bhd (later re-listed on Bursa Malaysia), and the rest of the foreign businesses in MCB so there was no external risk on the domestic operations.
On hindsight, had he not separated the operations, Maxis Bhd would surely have been affected by what is happening at Aircel and might have been forced to bail it out.
MCB is 45% controlled by Ananda through his private investment vehicle, Usaha Tegas Sdn Bhd. Saudi Telecom Co owns a 25% stake, while 30% is held by bumiputra investors.
When Ananda bought the stake in Aircel 12 years ago, he surely did not expect it to take the route of bankruptcy. It is something unheard of in this astute businessman’s stable of companies. But now, reports out of India are saying he has decided not to invest further in Aircel, and with banks having decided not to lend out fresh funds, Aircel filed for bankruptcy protection from creditors this week.
Aircel’s debt amounts to 155 billion rupees (US$2.38bil). It has tried unsuccessfully to restructure its debt and this “is the first time a major company made such a move on its own in India because banks had previously initiated bankruptcy proceedings”.
Aircel is said to be the fourth telecoms to wind up after Reliance Jio’s entry.
Over the years, MCB has made about US$3.4bil of shareholder advances to Aircel. There seems no clear path to recoup this investment, and so this explains why it does not want to put in more funds. It is said that MCB could potentially lose about US$7bil from the failed 12-year foray into the Indian mobile market.
India’s mobile sector is consolidating as a result of intense competition.
Even Mukesh’s own brother’s company is facing challenging times. In fact, Anil Ambani tried to merge Reliance Communications with Aircel but the merger talks collapsed in October. Now Anil is selling the wireless assets to Mukesh, and shutting down the 2G/3G business.
Idea and Vodafone are merging to fight Jio, while Bharti Airtel is said to be on the lookout to strengthen itself.
Under India’s 2016 bankruptcy law, lenders will sell off assets owned by companies that can’t repay their debt. Now, it depends if the Indian tribunal accepts Aircel’s request.
If it does, then Aircel will be placed under a “court-appointed insolvency resolution professional” that has 270 days to work out a repayment plan, as per the Insolvency & Bankruptcy Code 2016. “If no plan is agreed on by the deadline, the law mandates the company be declared bankrupt and thrown into liquidation.”
What lies ahead for Aircel remains unclear for now, but it would be a sheer waste to just let a 19-year-old company go down. Surely, players like Mukesh and Bharti Airtel with deep pockets could pick Aircel up, as it has some good assets. Will they be the miracle that the market is hoping for?