MUMBAI, June 27 (Reuters) – Reliance Communications (RLCM.BO), India’s No. 2 mobile carrier, agreed to sell its telecoms tower business to GTL Infrastructure Ltd (GTLI.BO) to create what it said would be the world’s largest telecom infrastructure firm not controlled by a telecom operator.
Financial terms of the deal were not disclosed, but the combined company would be worth over $11 billion and would own more than 80,000 towers, with more than 125,000 tenancies from 10 operators, Reliance Comm said.
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 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.
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) licences that cost far more than expected in a recent government auction.
“There is a shake-up waiting to happen in the telecom industry in the next 8-10 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.
Reliance Comm said it would retain its optic fibre network and related assets, and would receive cash as part of the deal. It said Reliance Comm shareholders would receive shares in the combined company.
Carriers in India have been hiving off their tower operations in order to reduce their capital expenditure and debt burdens.
“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.
One of the sources said Sunday’s deal would result in a debt reduction of 180 billion rupees ($3.91 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 licences, the source said.
Reliance Comm said details on the cash infusion and swap ratios for minority shareholders would be finalised in due course. Shares in Reliance Comm, which is looking to sell as much as a 26 percent stake in itself, have risen 33 percent in June. (US$1=46.05 rupees) (Additional reporting by Pratish Narayanan; writing by Tony Munroe, editing by Miral Fahmy)