Reliance Communications Ltd, India’s second largest wireless services firm, is selling a 5% stake in its tower business for $337.5 million (Rs1,400 crore) to seven unnamed private equity firms ahead of plans to sell a larger portion of the unit to strategic investors or public investors in an initial share sale after this financial year.
The aim of the sale to firms from the US, Europe and Asia announced on Thursday is to set a “benchmark valuation” of $6.75 billion for Reliance Telecom Infrastructure Ltd, the tower firm, but Reliance Communications withheld the names of the investor firms.
The infrastructure company, which currently owns about 14,000 telecom towers, aims to nearly triple that number to 40,000 by March 2008 and 50,000 towers by March 2009. Most Indian cellular companies are rapidly expanding their tower networks into rural areas seeking new customers. India has more than 180 million cellular customers.
“We are aiming to achieve 100,000 tenancies for our tower business by March 2008.” Anil Dhirubhai Ambani, chairman of Reliance Communications, said, referring to the number of towers multiplied by the number of mobile phone firms that have a radio mounted on each tower.
The funds from the sale of the 5% stake in the Reliance tower firm will go to its parent. “The telecom infrastructure company will raise independent debt of $1.5 billion to $1.75 billion by the end of March 2008 to roll out the expansion plan,” said Ramesh Venkat, group president, finance and treasury, Reliance Communications. The tower firm is currently debt-free.
The cost of setting up a telecom tower varies from Rs15 lakh to Rs40 lakh and rentals can be between Rs2 lakh and Rs8 lakh each annually, Reliance Communications said. “It takes five to six years to recover the investment in one tower,” said Venkat.
Reliance Communications will remain the anchor tenant for the telecom infrastructure company. Modalities of a further divestment in the tower business are yet to be worked out, but, “We could even hold a lower percentage in the company; that is not an issue,” said Venkat.
Analysts tracking the telecom business said Reliance Communications will gradually distance itself from running the tower business. “The sale of stake is aimed to make Reliance Communications’ balance sheet asset-light,” said R. Ravi, a telecom analyst with Karvy Stock Broking Ltd, explaining the phone services firm will not need to pump in cash into the tower business.