Mumbai: The Reliance Anil Dhirubhai Ambani Group (R-Adag) plans to reduce its holding in its telecom tower business to 20-25% from 95%, with stake sales to GTL Infrastructure Ltd and a private equity investor, two bankers familiar with the plan said.
The sale of stakes in Reliance Infratel Ltd, which is being spun off from the group’s cellphone firm Reliance Communications Ltd (RCom), will take place in transactions that will combine cash and stock, said the bankers, who didn’t want to be named.
The sale will take place in three stages. First, 54,000 telecom towers operated by Reliance Infratel and 32,000 GTL Infrastructure towers will be hived off into a special purpose vehicle, or SPV.
Second, the SPV will sell a stake to a private equity investor. Third, the SPV will issue shares to RCom and GTL Infrastructure shareholders, and subsequently seek a stock market listing, one of the bankers cited above said. The details are being worked out and the sale may take place in a few weeks, the banker said.
RCom is the anchor tenant of the towers operated by Infratel across the country. A back-of-the-envelope calculation values the firm’s tower assets at around Rs25,000 crore.
The Reliance Infratel transactions would precede the sale of a 26% stake in RCom. The sale of the towers business would help improve the valuation of RCom and help reduce some of the Rs33,000 crore of debt on its books, Mint reported on 14 June. About half the debt can be traced back to Infratel.
According to the people familiar with the negotiations, GTL Infrastructure chairman Manoj Tirodkar and the private equity firm are likely to own 25% each after the transaction and the remaining shares would be given to RCom and GTL Infrastructure shareholders.
RCom is being advised by JPMorgan India Pvt. Ltd and GTL Infrastructure by Standard Chartered Plc. RCom has started talks with three private equity firms—Blackstone Group Lp, TPG Capital Lp and Carlyle Group Ltd, The Economic Times reported on 15 June.
Industry experts said the sale in the form of a combination of cash and stock would bring RCom tax benefits.
Graphic: Ahmed Raza Khan / Mint
“A company has to pay capital gains tax for any money coming into the company through a sale of investment in another entity. If a part of the payment is in the form of shares to existing shareholders of the seller, then there is no new cash coming into the company and hence would be exempt from capital gains tax,” said an analyst with the Indian arm of a foreign investment services firm, who didn’t want to be named.
RCom currently owns 95% of Infratel, mainly through three entities—Reliance Communications Infrastructure Ltd, Reliance Globalcom BV and Reliance Telecom Infrastructure (Cyprus) Holdings Ltd. The remaining shares are held by private equity investors.
The stake sale is in line with R-Adag’s plan to turn Infratel into an independent tower infrastructure firm. Analysts say the spin-off would help Infratel improve its tenancy ratio—the ratio of the number of operators to the total number of towers.
“The way forward for mobile telephony firms is to share infrastructure like towers to reduce their cost as their margins are hit by lower tariffs and intense competition,” a GTL Infrastructure executive said on condition of anonymity.
Such firms would be more comfortable using the towers of independent operators rather than share the infrastructure controlled by rival telecom firms, added the official.
An email sent to RCom remained unanswered.
On 14 June, the boards of RCom and Infratel approved the restructuring of Reliance Infratel. The firm said in a statement that this would lead to the “creation of the world’s largest independent telecom infrastructure company not owned or controlled by any telecom operator”. The statement said the independence and neutrality of the tower company would help in attracting new tenants and roping in investors.
“Infratel has a tenancy ratio of around 1.75, out of which RCom alone would account for 1.5-1.6. Entrusting the tower business to a telecom asset management company would help it get external tenants, which would improve the company’s valuation and create shareholder value,” said Satyender Khatter, telecom analyst at Elara Capital India Pvt. Ltd.
Another analyst at a Mumbai-based brokerage said Infratel’s tenancy ratio could go up to 2.5 once the transfer of assets is complete. He did not want to be named as he is not authorized to speak to the media. “Better tenancy would help shareholders get a better valuation when the company lists itself to offer an exit route to investors.”