Mumbai: The promoters of Quippo Telecom Infrastructure Ltd (QTIL), the telecom tower subsidiary of SREI Infrastructure Finance Ltd, will raise about Rs900 crore by issuing fresh equity and selling shares in the secondary market to fund the Rs2,400 crore merger with Wireless TT Info Services Ltd (WTTIL), a unit of Tata Teleservices Ltd.
QTIL’s main shareholders—IDFC Private Equity, Oman Investment Fund (OIF) and SREI Infrastructure Finance—will subscribe to the additional shares.
Graphics by Sandeep Bhatnagar / Mint
Hemant Kanoria, chairman and managing director of SREI, said the firm will raise the remaining Rs1,500 crore through mezzanine capital and debt, for which QTIL is in advanced talks with various banks and financial institutions.
A mezzanine investment, typically used for financing acquisitions, consists of a debt instrument with an attached equity component. The equity provides potential for appreciation and the debt offers a hedge against downside risk.
The investment process is expected to be completed by August-end. “We are awaiting a few legal clearances required to complete the process of the merger,” said Kanoria.
IDFC Private Equity holds a 11.24% stake in QTIL, OIF has 16.60%, and SREI and its various subsidiaries together hold a 55% stake. The Government of Singapore Investment Corp. is also a shareholder.
An official at one of the stakeholders confirmed that IDFC Private Equity will invest in the capital-raising plans of QTIL. This person, who declined to be named, said that while a part of the investment would be through purchase of equity shares, other financial arms of the IDFC group may also participate in QTIL’s Rs1,500 crore debt capital raising plan.
“Out of the Rs900 crore funding, IDFC Private Equity would subscribe to shares worth Rs250 crore for funding the merger, while the rest would be invested by OIF and SREI Infrastructure Finance,” said an official at one of the shareholding firms in QTIL. “This deal is expected to be completed within a week. Following this investment, the shareholding of IDFC Private Equity will go up in QTIL.” He did not want to be named because the deal has not yet been completed and announced.
The official said that a part of Rs900 crore will be raised through fresh equity issued to existing shareholders and a portion would be raised by selling shares in the secondary market. “For the remaining Rs1,500 crore funding, other financial arms of IDFC may also make additional investments for the merger by ways of mezzanine and debt financing,” this person added.
In January, Tata Teleservices merged its tower arm WTTIL with QTIL to create a Rs13,000 crore entity with 18,000 towers. Under the terms of the strategic partnership, Tata Teleservices and QTIL agreed to swap 51% and 49% stake, respectively, in the infrastructure business.
QTIL had agreed to make an upfront cash payment of Rs2,400 crore for a 30% stake in WTTIL, while the remaining 19% stake was to be picked up by QTIL by transferring its 5,000 towers to the new firm.
The battle of independent telecom tower business has intensified in the recent past. While WTTIL merged its business with Quippo, independent telecom tower companies American Tower Corp. and Crown Castle International Corp. are also scouting for an opportunity to enter the market by bidding for Aircel Cellular Ltd’s tower business.
While Bharti Infratel Ltd, the telecom tower business of Bharti Airtel Ltd, and the combined entity of QTIL and WTTIL have also been bidding for Aircel’s tower business, telecom analysts have said that Quippo may not have enough cash to be able to win the Aircel bid, which reports estimate to be in the range of Rs4,800 crore to Rs7,600 crore.
Some analysts also said that the Rs2,400 crore acquisition by Quippo has been delayed by eight months due to funding constraints. “We understand the proposed acquisition (by QTIL) has run into financing problems, given the tough credit conditions in recent months,” the equities desk of India Infoline Ltd said in an August report.
Kanoria denied the funding constraints. “These are mere speculations that raising funds will be a constraint for us. We have received firm commitments from the shareholders of QTIL to finance the acquisition,” he said.
Mint could not independently ascertain which banks and financial institutions were investing mezzanine capital or extending debt for QTIL’s merger.
In December 2007, QTIL had acquired 1,000 towers from Spice Telecommunications Ltd along with rights to roll out 12,000 towers. This included the entire tower portfolio of Spice in Punjab and Karnataka. In February 2009, QTIL-WTTIL signed up a tower-sharing agreement with Unitech Wireless Ltd, under which Unitech Wireless would lease tower infrastructure from WTTIL and QTIL across India.
India’s total tower base is currently 289,323. Indus Towers Ltd—a joint venture of Bharti Airtel, Vodafone Essar Ltd and Idea Cellular Ltd—is the largest telecom tower company with of 98,000 towers. State-owned Bharat Sanchar Nigam Ltd has 40,000 towers and recently moved them into a separate subsidiary. Bharti Infratel and Reliance Infratel Ltd own 28,078 and 48,000 towers, respectively.