Infratel, Indus merge to form a tower giant
New Delhi/Mumbai: Bharti Infratel Ltd, the tower arm of India’s largest telecom operator, and Indus Towers on Wednesday agreed to merge their businesses to create the world’s largest tower company outside China.
The combined entity will own more than 163,000 towers, second only to China Tower. The merged company will be listed on the stock exchanges as Bharti Infratel is a publicly traded company.
The merger will help Bharti Airtel Ltd, Vodafone India Ltd and Idea Cellular Ltd, which came together in 2007 to form Indus Towers, easily pare their stakes in the combined entity to raise funds to invest in their struggling telecom operations and cut debt.
Bharti Infratel and Vodafone India own 42% each in Indus Towers, while Idea Cellular holds 11.15%. The remaining 4.85% is held by private equity firm Providence.
Once the merger is completed, Airtel, which currently owns 53.5% stake in Bharti Infratel, will hold between 33.8% and 37.2% in the merged entity, while Vodafone India will own between 26.7% and 29.4%. Airtel and Vodafone India will have equal rights in the merged entity.
“It would have been tough to do a deal otherwise,” Nilanjan Roy, global chief financial officer of Airtel, said on Wednesday, responding to an analyst’s question on why it agreed to share equal control with Vodafone India despite its higher shareholding.
Airtel said that its board has also decided to engage with potential investors for evaluating a strategic stake sale in the merged entity.
As part of the proposed merger, Idea has the option to either sell its 11.15% stake in Indus Towers for Rs6,500 crore or get a 7.1% stake in the combined company if Providence also opts to receive new shares in exchange for its shareholding in Indus Towers.
Providence has the option of choosing cash or shares for 3.35% of its 4.85% shareholding in Indus Towers, with the balance exchanged for shares.
“This merger is positive for Airtel and Vodafone, which will control the combined entity and thus continue to wield pricing power to negotiate tower rentals and make sure the rentals do not go up. This will protect their P&Ls. Also now since there is a formal valuation of the entity, the telcos can monetize their stake when they want and plough it back into their telecom business,” a Mumbai-based analyst said, requesting anonymity.
In the Indian tower industry, ATC owns or operates over 68,000 tower sites in India with final approval pending to buy an additional 10,000 towers from Idea. Bharat Sanchar Nigam Ltd owns 66,000 towers, Reliance Communications has 43,000 (which it plans to sell to Reliance Jio) and GTL Infrastructure Ltd has 27,759 towers.
The Indus-Infratel merger is expected to result in savings of more than Rs500 crore, which Indus Towers pays as dividend distribution tax, apart from simplification of the organizational structure and administrative cost efficiencies.
The merger will need approvals from Competition Commission of India, Securities and Exchange Board of India, National Company Law Tribunal and the telecom department. It is expected to close by 31 March 2019.
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