16/06/2015 9:52 AM IST | Updated 15/07/2016 8:25 AM IST

Anil Ambani's Reliance Communications In Talks To Buy Sistema's India Ops In Stock Swap

Indian industrialist and Chairman of ADAG (Anil Dhirubhai Ambani Group) Anil Ambani smiles during the annual general meeting of Reliance Power in Mumbai on September 4, 2012. Reliance Power, controlled by billionaire Anil Ambani, said that it started production at two coal mines in central India, ahead of schedule, which sent its shares up two percent. Coal from the Sasan mines will be used to generate electricity at the firm's 3,960-megawatt power project in the same region, a company statement said. AFP PHOTO/ INDRANIL MUKHERJEE (Photo credit should read INDRANIL MUKHERJEE/AFP/GettyImages)

Reliance Communications Ltd, a part of Anil Ambani's Reliance Group, said Monday that it is in talks to buy Russian conglomerate Sistema's Indian mobile phone operations through a stock swap.

This would be the first major deal in the sector since 2009, when Telenor bought 67 percent of Unitech Wireless for Rs 6,120 crore.

India's crowded telecoms sector has been ripe for consolidation for long, industry experts say. But deals have been few and far between, partly due to government rules on mergers, which require acquiring companies to pay the government market value for the target's airwaves not bought in auctions.

For debt-burdened Reliance Communications, the deal would give access to Sistema's airwaves in nine circles, or zones, without a significant payout as most of its airwaves were bought in competitive auctions.

"The discussions are indicative and non-binding in nature, and remain subject to due diligence, definitive documentation and approvals, as may be necessary," Reliance Communications, India's fourth-largest mobile operator, said in a release. "There is no certainty that any transaction will result."

Sistema's Indian telecoms business, Sistema Shyam Teleservices (SSTL), runs the MTS brand of wireless communications services and is one of the market's smallest players with nearly 10 million customers and less than a 1 percent market share. The combined entity will have nearly 118 million subscribers, and will bring in Rs 2,000 crore of additional revenue to Reliance Communications, which has Rs.31,943 crore of debt after the recent bandwidth auctions.

Sistema and Russia's government together own nearly 74 percent in the unlisted Sistema Shyam joint venture, while India's Shyam Group has a 24 percent stake. The rest is owned by individual Indian investors.

Reliance will not take on SSTL's debt, valued around Rs 3,800 crore. SSTL scaled back operations in 2013 when it had to buy new telecommunication permits after its earlier permits were cancelled by a court order linked to a broader 2G licensing scandal.

Sistema's billionaire owner Vladimir Yevtushenkov had in May said he had held talks with Reliance Communications about a possible joint venture in India, but had ruled out a sale.

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