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RCom puts tower unit on the block for $5 bn: Sources

RCom puts tower unit on the block for $5 bn: Sources
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First Published: Fri, Aug 19 2011. 05 31 PM IST
Updated: Fri, Aug 19 2011. 05 31 PM IST
Mumbai: Billionaire Anil Ambani’s Reliance Communications has hired UBS to sell its 95% stake in tower unit Reliance Infratel and has reached out to several strategic and private-equity firms, asking for $5 billion for the stake, three sources with direct knowledge said.
Potential bidders have expressed concern about debt-laden Reliance’s valuation being at least a billion dollars too high, two of the sources said, adding that the process was still at a very early stage.
UBS has reached out to US companies American Tower and Crown Castle International, India’s Viom Networks and UAE’s Etisalat, said the sources, who declined to be identified because the process is not public yet.
The bank has also reached out to private-equity firms Carlyle, Apax Partners and Blackstone, the sources said.
UBS and Reliance Communications declined comment.
Reliance Communications, controlled by Anil Ambani, who ranked 36 on the Forbes global rich list last year, said in May it had several offers for its tower arm. But the sources told Reuters there were no formal offers on the table yet, mainly because of huge gaps in valuation.
Reliance Communications is battling a fast-growing but ferociously competitive Indian cellular market as low call prices and high operational costs squeeze margins.
Eight straight quarters of falling profits and failed attempts to raise cash are eroding investor confidence in the company, whose stock has lost 48% of its value so far this year, leaving the company valued at $3.45 billion.
By comparison, shares of larger rival Bharti Airtel are up more than 9% this year, while Idea Cellular has gained 37%.
Last year, Reliance Communications attempted to sell a 26% stake in itself to pare debt. But it found no takers.
A plan to float its tower unit in an initial public offering also failed to take off and a deal to merge its tower arm with a rival collapsed.
Lower Valuation
Tower valuations, based on analyst expectations and past deals, average about $100,000 per tower. For Reliance’s 50,000 towers, that would come to a valuation of $5 billion.
But sources said potential bidders value RCom assets at a far lower price mainly because the company needs to sell its stake to help recover some of its $7.5 billion debt.
The clock is ticking and costs are seen rising as Reliance Communications struggles to cut debt ahead of a major bond redemption next year.
The cost of insuring against debt default in Reliance Communications through credit default swaps (CDS) has risen, with the 5-year CDS jumping 145 basis points since the beginning of this year. A $925 million bond maturing in March 2012 has a conversion price of Rs654.
Since the bond is out of the money at current prices, the firm is likely to have to shell out about $1.2 billion for the 2012 debt.
Also hurting valuations for its tower units is its tenant count. Such companies usually rent out towers to mobile carriers, making their number of tenants a key factor when calculating valuation.
Reliance Infratel gets most of its revenue from Reliance Communications, and has fewer external tenants than Bharti’s tower arm or that of Vodafone Essar and Idea’s joint venture Indus Towers, analysts have said.
To add to the company’s woes, Ambani in February became the highest-profile executive to be questioned by federal police investigating a telecoms fraud that state auditors say cost the government $39 billion in lost revenue.
No executives from Reliance Communications have been charged and the company has denied any wrongdoing.
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First Published: Fri, Aug 19 2011. 05 31 PM IST