Anil Ambani’s Reliance Communications (RCom), the country’s fourth largest and most leveraged telecom operator, on Friday signed a non-binding pact to sell its tower business, Reliance Infratel, to private equity firm Tillman Global Holdings and TPG Asia to pare its debt, report fe Bureaus in Mumbai and New Delhi. Though the company did not divulge any financial details, sources said the tower entity has been valued at around Rs 21,000 crore. With 43,700 towers, the enterprise valuation of the company is quite similar to Viom Networks, in which a 51% stake was recently acquired by American Tower at an enterprise valuation of around Rs 20,000 crore.
Though the company did not disclose details of the manner in which the deal was being structured, sources said that RCom is expected to transfer around Rs 16,000-17,000 crore of its debt into this entity.
This way the cash payout to RCom will be around Rs 5,000 crore.
Besides the tower unit, Tillman and TPG will also evaluate the purchase of RCom’s extensive nationwide intercity and intracity optic fibre assets, in a separate and independent transaction. With a valuation of Rs 7,000-8,000 crore for the fibre assets, RCom eventually expects to reduce its total debt of Rs 35,254 crore at the end September to Rs 600 crore. If it materialises, its annual interest outgo will come down from Rs 1,462 crore in FY15.
The RCom stock, which has rallied more than 25% in seven trading session, corrected by Rs 2.65 or 3.2% on Friday and closed at Rs 80.95. Analysts said that though the deal, as and when it culminates, may bring down RCom’s debt and interest burden, it could also have an impact on the earnings potential of the company based on the rental it decides to pay being an anchor tenant.
It may have to pay a higher rental to make up for the discounted rent it gets from Reliance Jio under under a tower sharing agreement.
Reliance Infratel’s revenue at the end of FY15 stood at Rs 5,916 crore with an operating profit of Rs 2,398 crore but a net loss of Rs 964 crore.
In FY15, RCom’s net profit declined by 32% year-on-year to Rs 714 crore. While it reported a net loss of Rs 705 crore at the standalone level in the July-September quarter, the consolidated profit for the period at Rs 156 crore remained flat compared with the previous year.
TPG and Tillman have time until January 15 to finalise the deal, RCom said in a statement. The deal will be subject to final due diligence and regulatory approvals, it added.
Under the term sheet, the assets will be transferred from Reliance Infratel on a going-concern basis into a separate special purpose vehicle, to be owned 100% by Tillman and TPG. “RCom will continue as an anchor tenant on the tower assets, under a long-term MSA (master service agreement), for its integrated telecommunications business,” it said. “RCom intends to utilise the proceeds of the proposed transaction only to reduce its debt.”
There are eight major players in the tower business in the country with the three-way venture between Bharti Airtel, Vodafone and Idea Cellular being the largest with 115,942 towers with a tenancy ratio of 2.19. BSNL and Reliance Infratel are the number two and three players. The tenancy ratio of Infratel is at 1.80. Its customer market share and revenue market share stand at 11.59% and 11.60%, respectively.
Prospects for tower companies had brightened in the country post the grant of licences to 8-9 players in 2008 by the then telecom minister A Raja. This led a number of overseas tower firms setting up shop in the country as well some domestic players foraying into the business. However, the cancellation of these licences in January 2012 had made the viability of players with a smaller number of towers difficult. Of late, though, with consolidation in the sector and more auction of spectrum and telcos foraying into newer services like 4G, tower companies are again trying to build up scale.