NEW DELHI :
The merger of Bharti Infratel and Indus Towers, pegged to create the world’s second largest tower company, hangs in balance with a key government approval pertaining to FDI enhancement not coming in time.
The board of Bharti Infratel will meet on Tuesday and is likely to take a decision on a second extension for the long stop date in order for the companies to secure this approval, to complete the merger that was announced back in April 2018.
“If the board feels more time is needed (to secure government approval) then it (long stop date) may be extended further or else various other options can be looked at," a person familiar with the matter told Mint.
To be sure, in October a special committee by Bharti Infratel had extended the long stop date to 24 December.
The merger is crucial as it will help loss-making telecom companies Bharti Airtel and Vodafone Idea sell stake to raise funds in the competitive telecom battleground, especially at a time when they have to pay huge dues to the department of telecommunications after an unfavourable court verdict in October.
Bharti Airtel has set aside ₹34,260 crore and Vodafone Idea has made provisions for ₹25,677.9 crore in the September quarter after the Supreme Court upheld the government’s definition of revenue based on which telecom companies pay levies.
“Since the merger (of Bharti Infratel and Indus Towers) is contingent upon receipt of regulatory approvals and fulfilment of other conditions, there can be no assurance that the process can be completed within the extended time-frame," Bharti Infratel had informed the BSE in October.
“There are high chances that the deal could fall through and then all shareholders will have to monetise towers assets separately," another person aware of the matter said requesting anonymity.
Emails sent to DoT and Vodafone Idea were unanswered till press time. The spokesperson for Bharti Airtel declined to comment on the query.
Even if the two tower companies get a second extension of the long stop date, which is key to completing the merger, monetizing stake in tower assets is likely to be difficult at this stage even if the merger goes through, as there are clouds of uncertainty on Vodafone Idea’s future.
At the Hindustan Times Leadership earlier this month, Aditya Birla Group chairman Kumar Mangalam Birla had said that the group’s telecom unit, Vodafone Idea, will have to “shut shop" if there was no relief from the government following the Supreme Court ruling requiring it to pay statutory dues of ₹40,000 crore to the DoT within three months.
“The valuation of tower assets is also directly dependent on its anchor tenants. Since Vodafone Idea will be an anchor tenant of the proposed merged entity, any potential investor will wait for clarity whether government will offer relief on the AGR case," an industry executive said requesting anonymity.
The two tower companies had in April last year agreed to merge their businesses. The combined entity will own more than 163,000 towers, second only to China Tower. Airtel and Vodafone India will have equal rights in the merged entity.
The Economic Times on Monday reported that the merger was delayed due to the proposal being stuck at the Department of Revenue because of the concerns over the withholding tax case against Vodafone Group which are yet to be resolved.
“Under the tax withholding case, it is the shareholder’s (Vodafone Plc) liability and hence it doesn’t make sense for the government to hold up the Indus-Infratel merger, if it is a tax neutral merger, as the company involved here is Indus Towers and not the shareholder. Even if the merger goes through, because of the AGR verdict, it would make little sense for any investor to be keen at telecom assets currently given the huge dues payable by operators who are promoters of these tower companies," Sumit Mangal, Partner, L&L Partners, said.