Reliance Infratel may sell stake first

Reliance Infratel may sell stake first
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First Published: Sun, Jun 13 2010. 11 23 PM IST
Mumbai: The Anil Ambani group may sell a stake in the debt-laden telecom towers business of Reliance Communications Ltd (RCom), seeking to improve the valuation of its flagship firm, said a person familiar with the plan.
The sale of a stake in Reliance Infratel Ltd, as the towers business is known, would precede the proposed divestment of as much as 26% of RCom to strategic or private equity investors, said the person, who didn’t want to be named. An RCom spokesperson declined to comment.
RCom’s board on 6 June approved the stake sale in India’s second biggest mobile phone company by subscribers, giving it the freedom to raise funds for expansion and seek consolidation opportunities.
The stake sale in the towers business would help RCom reduce some of the Rs33,000 crore of debt on its books, almost half of which can be traced back to Reliance Infratel. This would help RCom realize a better valuation for the stake it sells potential investors.
According to a draft red herring prospectus filed by Reliance Infratel in September, the company has total debt of at least Rs15,000 crore. RCom holds a 95% stake in Infratel.
Media reports over the past few days have suggested that RCom could be in talks with international telecom firms such as the Abu Dhabi-based Emirates Telecommunications Corp., known as Etisalat, South Africa’s MTN Group Ltd and AT&T Inc. of the US for a possible stake sale.
Reliance Infratel had planned an initial public offering (IPO) of shares as long ago as in February 2008, but the public issue is yet to hit the market.
“Reliance Infratel has been deferring its IPO for quite sometime now, and bringing in a strategic investor could be one route for the company to secure funds for capital expenditure. Also, with declining revenue per user, it could become difficult for RCom to service the debt on its books,” said Rahul Jain, a telecom sector analyst at Angel Broking Ltd.
To be sure, not all analysts subscribe to the view that RCom necessarily has to deleverage Infratel’s books to command a premium for its stake.
“What really matters is the investor’s faith in the long- term business in case of a company like Reliance Communications,” said a research analyst with a Mumbai-based brokerage who did not want to be named as he is not authorized to speak to the media.
“Moreover, the fresh capital that a strategic investor would bring will deleverage RCom, as it does not require significant investment in infrastructure in the near term, given the low levels of utilization at present,” the analyst said.
In a presentation made to investors in May, RCom said Infratel was estimated to have around 54,000 towers across the country as of 31 March. India’s telecom tower market has seen two transactions in the last five months. GTL Infrastructure Ltd bought Aircel Ltd’s 17,500 towers for Rs48 lakh apiece and Quippo Infrastructure Ltd purchased Tata Teleservices (Maharashtra) Ltd’s 2,500 towers for Rs52 lakh apiece.
A rough calculation, assuming Rs48 lakh per tower as the price, puts Reliance Infratel’s asset value in the region of Rs25,000 crore. Reliance Communications’ market capitalization, at its closing share price of Rs. 172.55 on Friday, is Rs 35,625 crore.
Besides Reliance Infratel, GTL and Quippo, other major telecom tower operators in India are Bharti Infratel Ltd and Indus Towers Ltd.
GTL owns 32,000 towers and wants to raise this number to about 50,000 in the next three years. Quippo has around 38,000 towers in India.
Bharti Infratel, Bharti Airtel Ltd’s tower arm, has around 30,000 towers. Indus Towers has at least 100,000 towers and its shareholders are Bharti Airtel and Vodafone Essar Ltd, both of which hold a 42% stake each, and Aditya Birla Telecom Ltd, which owns the remaining 16%.
Reliance Infratel has tower sharing agreements with at least five telecom operators already offering mobile telephony services in India or are set to do so shortly. These firms include Etisalat, Aircel and Tata Indicom.
Reliance Infratel—which also houses RCom’s optical fibre cable network—would be especially lucrative for companies that have won broadband wireless spectrum in the recently concluded government auction, once they decide to roll out their services.
Infotel Broadband Services, which has been recently acquired by Anil Ambani’s older brother Mukesh Ambani’s Reliance Industries Ltd and the only company to win pan-India broadband wireless access, would be one such company.
CALCULATIVE MOVE
THE NEWS
Reliance Infratel, the tower subsidiary of Reliance Communications, might look to sell a strategic stake to investors, before it scouts for potential investors for a 26% stake in RCom.
THE BACKGROUND
With the non-compete agreement between the Ambani brothers out of the way, RCom, the telecom services arm of the Anil Ambani Group, is free to sell equity in the company. On the other hand, Infratel’s IPO, planned way back in February 2008, is yet to hit the market.
THE IMPLICATION
The move would help RCom offset some of the debt that rests on its books and help it realize a better valuation for the stake.
aveek.d@livemint.com
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First Published: Sun, Jun 13 2010. 11 23 PM IST