BackR-Com signs term sheet with Tillman and TPG for sale of tower assets
R-Com intends to utilize the proceeds of the proposed transaction only to reduce its debt
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Mumbai: Reliance Communications Ltd (R-Com), part of billionaire Anil Ambani’s Reliance Group, has signed a preliminary agreement with Tillman Global Holdings Llc and TPG Asia Inc. for the sale of its telecom towers and optic fibre assets—a deal that may be worth as much as ₹ 30,000 crore.
India’s fourth-biggest wireless telecom carrier R-Com on Friday said it has signed a “non-binding term sheet" with Tillman Global and TPG Asia “in relation to the proposed acquisition of R-Com’s nationwide tower assets and related infrastructure by Tillman and TPG".
R-Com did not disclose the value of the potential deal.
A person close to the development said, on condition of anonymity, the towers were valued at ₹ 21,800 crore and optic fibre assets at around ₹ 8,000 crore.
A deal, if it is clinched, would help R-Com reduce its debt and pare interest costs. As of 30 September, R-Com had consolidated debt of ₹ 35,254 crore. It incurred an interest cost of ₹ 2,755 crore for the last fiscal year.
Under the term sheet, the assets are intended to be transferred from Reliance Infratel Ltd on a going concern basis to a separate special purpose vehicle to be owned by Tillman and TPG.
R-Com will be an anchor tenant of the tower assets, under a long-term agreement, for its telecom business. “Tillman and TPG will also evaluate purchase of R-Com’s extensive nationwide intercity and intracity optic fibre assets, in a separate and independent transaction," said R-Com in a statement.
R-Com also said that the parties have entered into an exclusivity agreement valid until 15 January 2016.
“The proposed transaction is subject to final due diligence, definitive documentation, applicable regulatory and other approvals and certain other terms and conditions. Accordingly, there can be no certainty that a transaction will result. Further announcements will be made at an appropriate stage," R-Com said.
The person cited above said that despite the non-binding nature of the agreement, a deal is expected to be concluded smoothly.
“R-Com is expected to fetch around ₹ 30,000 crore via this deal and the debt is expected to come down to around ₹ 10,000 crore, making the company one of the under-leveraged telecom operators in the country," the person said.
This is the second big transaction announced in the telecom towers space in two months. In October, American Tower Corp. (ATC) said it will acquire a 51% stake in Viom Networks Ltd for ₹ 7,635 crore.
ATC said it would acquire the stake from the current managing partner, Kanoria Group, and several other minority shareholders including Tata Teleservices Ltd and IDFC PE (private equity).
Viom, the second largest telecom tower company in India, owns and operates 42,200 wireless communications towers and 200 indoor distributed antenna systems across the country.
The deals precede the entry of Reliance Jio Infocomm Ltd, which is controlled by Reliance Industries Ltd of Mukesh Ambani, older brother of Anil Ambani.
Reliance Jio, which plans to start its services in the fourth quarter of the current fiscal year, seeks to provide 100 million wireless broadband and 20 million fibre-to-the-home customers with seamless connectivity across 2,300 megahertz (MHz), 1,800MHz and 800MHz bands.
The entry is expected to intensify competition in the sector.
“The proximate causes that have driven R-Com to explore sale of tower and fibre optic assets is the high leverage ratio in the balance sheet as well as shift of competitiveness orbit in the days to come with launch of R-Jio," said Alok Shende, founder-director and principal analyst at Ascentius Consulting.
“Both these causes have led to exploration of farthest corner of fixed assets that can be sweated for cash flow. Putatively, unlocking of fixed assets is a positive development for R-Com as well as industry, and in the quarters to come, many such deals can be expected," he said.
Shende added that the interest from Tillman and TPG also reflects the depth of the Indian telecom market and could be a precursor to the revival of outsourcing deals that have almost come to standstill in the recent past.
In November, R-Com said that it will buy the local unit of Russia’s Sistema JSFC in a deal valued at ₹ 4,500 crore in stock and payments to the government for spectrum allotted to Sistema—a transaction that may herald the much-anticipated consolidation in India’s telecom industry.
Shares of R-Com fell 3.11% to close at ₹ 81.05 each on BSE, while the benchmark Sensex index lost 0.96% to close at 25,638.11 points on Friday.
R-Com shares touched an all-time low of ₹ 45.65 each on 25 August; they have since gained 77.55%.
Reliance Group companies have sued HT Media Ltd, Mint’s publisher, and nine others in the Bombay high court over a 2 October 2014 front-page story that they have disputed. HT Media is contesting the case.
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