(Reuters) – Reliance Communications, India’s second biggest cellphone operator, has agreed to merge its telecoms communication towers business with that of GTL Infrastructure Ltd to create what it said would be the world’s largest telecoms infrastructure firm not controlled by an operator.
Deals | Inflows Outflows
Financial terms of the deal were not disclosed, but the combined operations would have an enterprise value of over $11 billion and would own more than 80,000 towers, with more than 125,000 tenancies from over 10 operators, Reliance Communications said on Sunday.
Debt-laden Reliance Communications, controlled by billionaire Anil Ambani, earlier this month announced a plan to create an independent tower unit. It had previously planned to spin-off its 95 percent-owned telecoms infrastructure arm, Reliance Infratel, through an initial public offering.
Under the terms of Sunday’s deal, GTL Infrastructure Chairman Manoj Tirodkar would own 30 to 35 percent of the combined tower business and Ambani’s Reliance ADA Group would own 26 percent, with shareholders in the two firms holding the remainder, sources with direct knowledge of the matter said.
GTL Infrastructure, which has a market value of $934 million, in January agreed to buy Indian mobile firm Aircel’s telecom towers for $1.8 billion, which gave it a total of 32,500 towers.
India’s 15-player cellular industry is fiercely competitive, with carriers engaged in a margin-crushing tariff war and burdened with the expense of third-generation (3G) licenses that cost far more than expected in a recent government auction.
India is the world’s fastest-growing cellular market and with 600 million users is the second largest, after China.
“There is a shake-up waiting to happen in the telecoms industry in the next eight to 10 months. When that happens it is very important for Reliance Communications to have a strong balance sheet with low debt,” said Jagannadham Thunuguntla, head of equity at SMC Capitals.
“Otherwise they may become a takeover candidate. But if you have a relatively light balance sheet and relatively low leverage you can become an acquirer,” he said.
Shares in Reliance Comm, which is also looking to sell as much as a 26 percent stake in itself, have risen 33 percent in June. GTL Infrastructure shares are up 24 percent this month.
Under the GTL deal Reliance Comm said it would retain its optic fibre network and related assets and would receive cash as part of the deal as well as Reliance Comm shareholders getting shares in GTL Infrastructure.
One of the sources said Sunday’s deal would result in a debt reduction of 180 billion rupees ($3.9 billion) for Reliance Comm. Its debt before the deal stood at about 330 billion rupees, including the cost to finance its recent third-generation spectrum licenses, the person said.
Details on the cash infusion to Reliance Comm, and the share swap ratios will be finalized in due course, the statement said.
Carriers in India have been hiving off their tower operations in order to reduce their capital expenditure and debt burdens.
Spinning off tower holdings into an independent firm is intended to make it easier to attract rival carriers as tenants.
“In the tower business scale is very important and it makes sense for a serious player to consolidate with another player who has adequate resources. This being a capital-intensive sector, consolidation is the way to increase scale and tenancies,” said Manesh Patel, partner, advisory services, at Ernst & Young.
The deal is expected to close within six months, Reliance Comm said. GTL Infrastructure was advised by Standard Chartered , while Reliance Comm did not have investment bank advisors, one source said.
(Additional reporting by Pratish Narayanan; Writing by Tony Munroe; Editing by Greg Mahlich)