MUMBAI|NEW DELHI: Blackstone Group, the world’s biggest alternative asset manager, and Canadian investor Brookfield have joined the race to acquire as much as 40% in Bharti Infratel, intensifying the contest to own a slice of India’s second-largest telecom tower company.
Blackstone has teamed up with the consortium consisting of a rival private equity fund, KKR & Co., and Canada Pension Plan Investment Board (CCPIB), while Brookfield is bidding on its own, people familiar with the developments told ET.
Bharti Infratel shares fell 0.8% to Rs 361.75 at the close of trade on the BSE on Wednesday, giving the company a market capitalization of Rs 68,611.93 crore. A 40% stake would be valued at about Rs 27,000 crore.
Parent Bharti AirtelBSE -0.16 %’s board approved the sale of a significant stake in Infratel, it said in an exchange filing on October 25. It did not mention the quantum of the stake to be divested or the amount it is looking to raise. Bharti Airtel, India’s no. 1 telco, owns 72% in Infratel and the rest is held by public shareholders.
A Bharti spokesperson declined to comment on potential bidders and said the company does not have anything additional to say other than its exchange notification. Blackstone, KKR, CCPIB and Brookfield declined to comment.
A stake sale would give Bharti Airtel more financial headroom to combat deep-pocketed new entrant Reliance Jio Infocomm, owned by Mukesh Ambani, which started services in September. Airtel’s consolidated net debt stood at $12.2 billion at the end of September.
Investors are upbeat on prospects of tower companies in India as mobile phone operators expand data services, for which they will need additional towers or slots on them.
Bharti Infratel, India’s only listed telecom tower company, said net profit rose 31% year-on-year to Rs 774 crore in the quarter ended September 30 as mobile carriers invested in building capacity to meet demand for high-speed internet access, while revenue grew 8%. It enjoys an EBIT margin of 27% and has annualized EBIDTA of Rs 5,800 crore.
Bharti Infratel owns 42% in Indus Towers – India’s largest telecom tower company, which is a joint venture between Bharti, Vodafone, and Idea Cellular. Together with its share in Indus, the company has 90,000 towers across 22 circles. While its standalone market share of installed towers was 9.8% in FY15, together with Indus, it is the dominant player with a 40.8% share.
Blackstone had earlier teamed up with Carlyle Group in a failed attempt to buy tower assets of Reliance Communications in 2011. Brookfield has already signed a non-binding pact with RCom to acquire a controlling stake in the tower unit for Rs 11,000 crore.
According to analysts, a stake sale in the tower unit would be positive for both Bharti Airtel and Bharti Infratel. It would help the telco controlled by billionaire Sunil Mittal create a war chest in an increasingly competitive telecom market.
“It could actually be a positive situation for both Bharti and Bharti Infratel if Bharti sells down its stake in Infratel to below 51%. It would also give Bharti enough dry powder in taking on RJio (not that Bharti urgently needs the cash with an eminently manageable net debt to EBITDA of 2.5x post Oct-16 spectrum auctions),” JP Morgan analysts Viju K George and Anshul Agrawal wrote in a note on October 28.
“So, if we read between the lines, the fact that Bharti has actually made this announcement suggests that Bharti is not averse to selling below 51% and may be prepared to give up its majority ownership through a substantial sale to a desirable set of investors with the appropriate deal structure at the appropriate price,” they added.
JP Morgan said such a sale can be done off-market through a negotiated sale without affecting the Bharti Infratel stock price, unlike twice earlier, when Bharti sold 5% of its Infratel stake each in the market at a discount of Rs 20-25 to the then prevailing price. “Investors could perceive removal of conflict of interest with Bharti shedding controlling stake as a positive,” it said.
