Mumbai, Sept. 6: Talks between Reliance Communications Ltd (R-Com) and GTL to create India’s second largest operator of mobile towers with an enterprise value of $11 billion have collapsed.

The two sides had signed a non-binding term sheet on June 27 and gave the backroom boys in the two companies time till August 31 to knit a deal.

“Despite efforts, both parties have neither extended the term sheet nor entered into any definitive transaction agreements as envisaged therein. Consequently, the process of merger as originally contemplated will not take place,” GTL said in a statement issued today to the Bombay Stock Exchange.

Under the terms of the deal, GTL was supposed to acquire 50,000 mobile towers owned by Anil Ambani-led Reliance Communications.

Talks on the cash-and-share swap deal hit a gridlock once valuation differences cropped up.

R-Com said it had started discussions with “certain other strategic and financial investors” to close a similar transaction.

Reliance Communications is hoping to trim its debt and unlock value for shareholders from the passive infrastructure and related assets in its 95 per cent subsidiary, Reliance Infratel.

It said Reliance Infratel also planned to come out with an initial public offering, noting that it had filed a draft red herring prospectus in January with market watchdog Sebi.

“An appropriate further announcement will be made in due course,” R-Com added.

Reliance Infratel still has roughly four months to launch an initial public offering after which the one-year time limit to pursue this route of fund raising will lapse and the company will have to file another proposal.

Sources said Reliance Communications had already initiated talks with American Tower Corporation and was also engaging with financial investors, including private equity players.

This, however, was not confirmed by R-Com.

Analysts said the collapse of a potential merger would adversely impact Reliance Communications more than GTL as the former is stuck with a net debt of Rs 19,000 crore and a gross debt of Rs 33,000 crore.

“It’s definitely not a positive for Reliance Communications,” said Motilal Oswal Securities associate director Manish Shah.

“Reliance Communications needs to shed debt urgently and now we will have to look at what their plan B is. The Anil Ambani-controlled company has earlier stated that it was open to diluting a 26 per cent stake in flagship…that could bring in some results,” said Angel Broking’s telecom analyst Vibha Salvi.

The Reliance Communications scrip today fell by less than a per cent to Rs 162.90 on the Bombay Stock Exchange.

However, GTL Infrastructure rose nearly 1 per cent to Rs 45.60.