Vodafone to sell tower biz, price tag at $1.2 bn

Written by Rajat Guha | Rajat Guha | Anandita Singh Mankotia | New Delhi | Updated: Nov 4 2010, 09:15am hrs
The countrys second-largest GSM operator Vodafone-Essar has decided to unlock value by demerging its tower business and selling it off to an independent tower company. According to sources, Vodafone, which has around 7,000 telecom towers has valued them at around $1.2 billion and has appointed Barclays Capital as its advisor.

Though no final confirmation is available, likely bidders for the towers include independent tower companies like GTL Infrastructure, Srei Infra and American Tower Corp.

The bulk of Vodafones telecom towers has already been hived off into Indus Towers, a separate company, which is a three-way venture between Bharti Airtel, Vodafone-Essar and Idea Cellular. Indus is the countrys largest tower company with over 1 lakh towers. Vodafone holds 42% in Indus, Bharti 42% and Idea 16%.

According to the plan, the 7,000 towers spanning seven circles which are with Vodafone currently, will now be demerged into a separate entity, Ortus.

When contacted, a Vodafone-Essar spokesperson said: We dont comment on market speculations.

Vodafone-Essars plan to demerge its towers into Ortus hit the regulatory hurdle last year with the Foreign Investment Promotion Board objecting to the proposal. The government was apprehensive over the proposal, since it felt that the move might have impacted the tax liability of the company in the ongoing $1.6-billion lawsuit on the Hutch-Vodafone deal struck in 2007. Subsequently, the company approached the Delhi High Court. The matter is currently sub-judice.

The Vodafone plan follows the industry trend of monetising assets which can be shared with others. Typically, a tower can house two-to-three operators. Operators generally rent out space in each others towers and it makes sense if an operator maintains an arms distance from its towers. Hiving off and operating a tower company with few towers as is the case with Vodafone does not make business case; so it makes sense to sell it off.

Apart from Indus, Bharti Airtel has its own tower company, Bharti Infratel. In 2007, Bharti sold 10% stake in Infratel for $1 billion to a clutch of investors led by Temasek, the Singapore government's investment arm.

Industry experts feel the Vodafone move could also be spurred by the sudden spike in the company's debt owing to the 3G spectrum pay out. The 3G payouts were unexpectedly high. Vodafone-Essar has financed the Rs 11,617 crore which it paid for spectrum in nine circles through its Rs 10,000 crore loan from the State Bank of India. Additional funding was shored up by issuing commercial paper and loans from a consortium of banks. Divesting stake in its towers arm would help reduce the debt burden, a telecom analyst said.

Meanwhile, the move is also expected to help contain a possible increase in debt in case the company loses its tax battle. Vodafone-Essar is currently battling tax authorities over capital gains in the sale of Hutch's 67% stake in Hutch-Essar to Vodafone.