BackGTL plans to sell assets amid lenders’ squabble over repayments
The group plans to sell operations and maintenance part of its 28,000 towers, apart from its power venture
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Mumbai: Manoj Tirodkar is facing some hard choices. GTL group, including the telecom infrastructure firm that he founded, is sitting on a mountain of debt— ₹ 13,000 crore. Lenders are squabbling for priority in repayments, and there is an ongoing court case to liquidate the company.
GTL was established as a small partnership firm in 1985, almost a decade before India got its first mobile phone network. It subsequently rose to become one of the largest telecom tower companies in India. Things were moving swimmingly, until regulatory uncertainty struck, unravelling the company’s aggressive, debt-fuelled plans to dominate the telecom infrastructure business in the world’s second largest market by number of mobile phone users.
With few options left on the table, Tirodkar is planning to sell most of GTL’s assets to repay loans. “We have received interests from investors from the UK and the US," said Tirodkar, who plans to sell the operations and maintenance part of its 28,000 towers, apart from its power venture. The company is also open to diluting promoter stake and forming joint ventures.
Things started moving rapidly downhill for GTL after January 2010, when unit Chennai Network Infrastructure Ltd acquired 17,000 mobile towers from Aircel in a ₹ 8,400 crore transaction. GTL had then projected the deal to generate a revenue of ₹ 2,762 crore in 2010-11, and estimated it to rise to ₹ 17,170 crore in 2014-15. GTL followed the Aircel purchase with another aggressive gambit. It agreed to buy 50,000 towers from Reliance Communications Ltd (RCom) in June.
The RCom deal was the first to fall through, when the companies decided against pursuing the acquisition, barely three months later.
The Aircel deal unravelled in July 2013, when the telecom services provider lost licences after the Supreme Court struck down 122 permits following a scandal in which politicians and government officials were accused of illegally giving away airwaves to select firms. Aircel was suspended of tenancy (telecom operators hosted on a tower) commitments in July 2013.
GTL’s debt rose as its customers were hit by scams and its tower acquisition deals fell through even as interest rates climbed. In mid-2011, GTL and its lenders agreed on a plan to restructure its ₹ 8,000 crore debt.
The debt recast has, however, provided little relief to the company. GTL needs to generate higher earnings, or raise equity, or sell assets, according to Nirmal Gangwal, managing director at financial advisory firm Brescon Corporate Advisors Ltd. The firm specializes in liability management. Decent valuations for GTL’s assets may, however, be difficult to achieve, given the debt stress.
Tirodkar still rues the death of the Aircel deal. If the transaction had not collapsed, he said, GTL would have met its revenue projections. Even if GTL realized a mere half of the Aircel opportunity, he says, it would have received ₹ 8,500 crore over five years and an operating profit of approximately ₹ 2,000 crore.
In January 2014, trouble spread to its power business. Maharashtra reduced power tariffs, affecting GTL’s power distribution business as a franchisee for the state-owned distribution utility. Despite lenders’ approval to the debt restructuring package, banks refused to offer a so-called standby letter of credit to GTL, citing heavy losses in transmission and distribution. The contract was terminated in November 2014 after the company defaulted in paying the state utility.
The Aircel setback and the Maharashtra shock together cost the company ₹ 3,000 crore in revenue and ₹ 800 crore in Ebitda (earnings before interest, taxes, depreciation and amortization) per year, said Tirodkar. “Customers refused to spend money and just stopped investments in fresh deployments and upgrades," he added.
At its peak, GTL had a debt of ₹ 19,000 crore in 2010. Since 2011, it has paid down almost ₹ 4,500 crore in interest and principal, Tirodkar claims.
But repayments are not without problems either.
GTL has three classes of debt—external commercial borrowings and foreign currency convertible bonds; non-convertible debentures (NCD); and secured lenders.
Earlier this year, Standard Chartered Bank-Mauritius, on behalf of NCD holders with over ₹ 1,800 crore in dues, filed a winding-up suit against GTL in the Bombay high court. GTL had issued ₹ 1,400 crore worth of NCDs in 2010, in two tranches.
This was challenged by an IDBI Bank Ltd-led consortium of 17 banks, including the Indian subsidiary of Standard Chartered Bank, which are owed ₹ 3,343 crore.
The Standard Chartered Bank spokesman declined to comment. The consortium claimed that as secured lenders, they should be paid first.
GTL claims the lenders’ squabbles is scaring away potential buyers.
The firm has received some proposals, but the lenders must first agree among themselves, a GTL executive said, requesting anonymity.
“If unsecured lenders negotiate with secured lenders and arrive at a sharing ratio, it may be the best solution in the larger interest," the executive said. “It is, however, unfair and selfish on the part of the unsecured lenders to expect to jump the queue and want to be paid ahead of secured lenders."
One has to look at cash flows, debt obligations, disposable asset values and whether all these can actually rescue the company, said Narayan K. Seshadri, chairman of Tranzmute Capital and Management Pvt. Ltd, a business advisory firm.
Tirodkar wants to cut debt without another restructuring. The firm is planning to sell several assets over the next 12-18 months to raise at least ₹ 10,000-12,000 crore.
Tirodkar said that a large UK-listed firm is interested in the operations and maintenance business, while an Abu Dhabi firm and a US private equity investor are keen on the tower business. Discussions are at an advanced stage, he said, adding that lenders’ agreement is necessary. The sales will generate ₹ 1,200 crore of cash by 2015-16.
Promoters of GTL—which includes GTL Ltd, GTL Infrastructure Ltd and Chennai Network—are willing to cut stakes as well. Promoters hold around 44% in GTL, 27% in GTL Infra and 60% in Chennai Network.
To be sure, GTL is trying to sell assets for the last two years, but the company has not succeeded, said Arun Kejriwal, director of Kejriwal Research and Investment Services Pvt. Ltd.
“Bharti Airtel Ltd has sold towers. So, what is stopping GTL? If GTL is not getting the valuation that it wants, the company has to go by what the market gives," Kejriwal said.
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