Reliance Communications, MTS in Talks to Merge Telecom Business in India

India's fourth-largest telecom operator Reliance Communications said on Monday it was in exclusive talks to buy Russian conglomerate Sistema's Indian mobile phone operations through a stock swap.

The talks are non-binding and are subject to due diligence, and regulatory approval, Reliance Communications, controlled by billionaire Anil Ambani, said in a statement.

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

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.

Sistema's Indian telecoms business, Sistema Shyam Teleservices, is one of the market's smallest players with nearly 10 million customers and less than a 1 percent market share.

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

The unit 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 licensing scandal.

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