KKR fund injection may be a band-aid for bleeding Indian telecom companies

By: | Updated: October 11, 2017 2:01 PM

A consortium of buyers including KKR & Co., Canada Pension Plan Investment Board, Abu Dhabi Investment Authority and Singapore's GIC Pte is planning an $11 billion buyout of Bharti Infratel.

RCom owes creditors USD 7 billion. (Image: Reuters)

After a year of bloodletting, India’s telecom industry is on the cusp of a well-deserved breather. But don’t look for the billionaires in this dogfight to declare a truce. Bharti Airtel Ltd., controlled by Sunil Mittal, is still struggling to hold on to price-sensitive customers in smaller cities and towns, whereas Vodafone Plc’s local unit, as well as Idea Cellular Ltd., led by Kumar Mangalam Birla, are losing users pretty much everywhere. The top three players’ quarterly earnings will once again show pressure on revenue and profitability.

The big winner is Mukesh Ambani. The oil tycoon who ties with Tencent Holdings Ltd.’s Pony Ma as the third-richest person in Asia is winning subscribers at a rate of 5 million a month by offering free voice calls and cheap data.

So who’s calling for a timeout? Certainly not India’s telecom regulator, whose decision to slash what Ambani’s Reliance Jio needs to pay market leaders for terminating calls from the newbie network is going to cost the incumbents dearly.

If the mauling is going to stop for a while, then thank private equity and sovereign wealth funds. A consortium of buyers including KKR & Co., Canada Pension Plan Investment Board, Abu Dhabi Investment Authority and Singapore’s GIC Pte is planning an $11 billion buyout of Bharti Infratel Ltd. and its 42 percent affiliate Indus Towers Ltd., in which Vodafone and Idea Cellular also own stakes, according to the Economic Times.

For all the pain in wireless services, the back-end infrastructure — or cellular towers — is doing very well. Yes, Vodafone’s and Idea’s planned merger would see some drop in tower tenancy. But the marriage would take at least a year to consummate. Until then, though, Infratel’s post-tax earnings, including its share of Indus’s profit, is projected by ICICI Securities Ltd. to grow at a 10 percent annual pace, buoyed by Jio’s expansion.

Supposing the KKR-led deal does go through, both Bharti and Idea would get the cash they need to prune debt in their mobile service operations. Bharti’s net debt to Ebitda may have already peaked, however deleveraging is crucial for Idea, whose interest costs probably ate up a chunk of its earnings in the September quarter.

The other respite may come from Tata Teleservices Ltd., which, according to local media reports, is on the verge of shutting down its wireless offering. Some of its 3.55 percent market share would go to Jio, helping boost its 11 percent portion. At the very least, though, the redistribution of users won’t leave the top three any worse off.

Telecom is filling India’s state-run banks with dread. Reliance Communications Ltd., which is controlled by Mukesh Ambani’s younger brother Anil, saw its deleveraging plans go off the rails earlier this month. RCom owes creditors $7 billion. There may be haircuts for banks on Tata Teleservices’ $5 billion liability as well.

The carnage won’t cease until the industry winnows down to four players, including one state-owned operator. That’s a real possibility only when Idea and Vodafone have merged. In the meantime, any deal that enhances the stronger operators’ balance sheets and hastens the weaker ones’ exit would be good for everybody. If nothing else, at least the bleeding billionaires will be able to catch their breath.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Switch to Hindi Edition