GTL Infrastructure Ltd (GTL Infra) a Global Group Enterprise; was incorporated on February 4, 2004. It is a pioneer in Shared Telecom Infrastructure in India. The company is engaged in the business of providing Shared User Infrastructure facilities on Build, Own and Operate basis. They also offer ready to use passive infrastructure to wireless telecom operators. With a portfolio of about 28,000 towers located across all the 22 Telecom Circles in India, GTL Infra has emerged as India’s largest independent and neutral Telecom Tower company. The company is listed on BSE and NSE and has a Market Cap of Rs 2,305 Crores.

Business Model

The business model of infrastructure sharing enables the Telecom Operators to convert their capital expenditure to a fixed and predictable operational expenditure, allowing them to divert precious capital towards core activities.

Revenue

The revenues arise under long term (5-10-15 years) contracts with the Wireless Telecom Operators. Contracts are renewable upon expiry of the term, at the option of the Telecom Operators.

Chennai Network Infrastructure Limited (CNIL) was incorporated on 8th December, 2009 as a Special Purpose Vehicle formed through a trust, called Tower Trust. It owns, operates, manages, and maintains telecommunication infrastructure and towers and currently based in Chennai.

(The purpose of forming CNIL: In June 2010, the Hon’ble High Court sanctioned the transfer and vesting of Passive Infrastructure Undertaking from Aircel Ltd and their subsidiaries to Chennai Network Infrastructure Ltd, which involve the transfer of 17,500 telecom towers and other related components, 21,000 active tenants on these towers, a Right of First Refusal for additional 20,000 tenancies over the next three years for an all cash deal valued at an enterprise value of Rs 8,400 crore) (Source: Business Standard)

Transaction

GTL-Infra-SDR-Chennai-Network-Infra-merger-1

Valuation

The business of both the companies is same. Post implementation of Strategic Debt Restructuring (SDR), 19.31% of the total paid up capital of CNIL will be held by Tower Trust (Trust). GTL Infra is the sole beneficiary of the Trust. On the scheme becoming effective, 181,57,22,400 equity shares of Face Value Rs 10/- held by Trust into CNIL will be cancelled. The Free Cash Flow to Firm (FCFF) under DCF method for valuation of GTL Infra and CNIL is considered for valuation. The free cash flow available to the enterprise in the explicit period and those in perpetuity are discounted by discounting factor based on weighted average cost of capital.

Appointed date is 1st April 2016.

Swap ratio: 1 (One) equity share of GTL Infra of INR 10 each fully paid up for every 1 (One) equity share of CNIL of INR 10 each fully paid up.

Shareholding Pattern

Table 1: Post SDR- Shareholding Pattern

Particulars Nos of shares Holding %
PROMOTERS
GTL Limited 204,65,05,865 17.43%
Global Holding Corporation Private Limited 34,31,44,016 2.92%
Total A 238,96,49,881 20.35%
PUBLIC
Banks 7,96,87,13,258 67.87%
Insurance companies 42,69,53,586 3.64%
Others 95,58,01,549 8.14%
Total B 9,35,14,68,393 79.65%
Total A+B 11,74,11,18,274 100.00%
  • There is no change in Promoters shareholding except, 181,57,22,400 equity shares of Face Value Rs.10/- held by GTL Infra Limited in CNIL through Tower Trust will stand cancelled post arrangement.
  • Needless to say, the consortium of lenders are owning more than 51% stake in the ailing company, GTL Infra.
  • GTL Infra will issue 758,88,19,117 numbers of equity shares of Face value Rs.10/- to shareholders of CNIL and out of above issued shares it issued 225,60,47,760 equity shares to the lenders.
  • As per later dated 13th April, 2017, it issued 169,22,15,807 Equity shares of GTL Infra ranking pari passu with existing equity shares of the company, consequent to conversion of outstanding debt amounting to Rs 1692.22 Crore of the Company under SDR at a conversion price of Rs 10/- per Equity Share.

Shareholders’ approval for SDR

Both companies called an EGM and on 16th March 2017 & 23rd March 2017 shareholders of GTL Infrastructure Ltd and CNIL respectively approved the allotment of Equity Shares upon conversion of debt under SDR.

Main Rationale behind the scheme

The objective of the SDR scheme is to convert the debt, merge the company (GTL Infra) with CNIL and eventually sell the combined entity to a new promoter. The name of the new promoter is not yet declared by the company. SDR Scheme in this case started on 20th September, 2016, and will end after 18 months, i.e. on 20 March 2018.

Other Factors

  • As per RBI norms loans restructured under the scheme are not treated as non-performing assets (NPAs) and banks have to make low provisions of 5 per cent in most cases. The scheme allows banks to recognise interest accrued, but not due/paid as income. This enables banks to report lower NPAs and higher profits for 18 months.
  • By making banks majority owners and replacing the existing management, the scheme gives lenders the powers to turnaround the ailing company, make it financially viable and recover their dues by selling the firm to a new promoter. If banks are unable to sell to a new promoter within 18 months, then all regulatory relaxations cease to exist and lenders have to treat these assets as NPAs and make 100 per cent provisioning for these assets in majority of the cases. This could adversely impact banker’s profitability in a big way.

Financials

Table 2: Financials of GTLI standalone basis (All Figures in Rs. Crores)

Particulars March 2017 March 2016
Revenue from Operations 952 913
EBITDA 396 222
EBIT 157 -30
Interest 459 469
Market Cap 1422 495
Total Debt-Non-Current and Current Liabilities 5501 5420
MCAP/Debt 26% 9%
Interest coverage Ratio 0.34 -0.06

Table 3: Financials of CNIL (All Figures in Rs. Crores)

Particulars March 2017 March 2016
Revenue from Operations 1,334 1,001
Profit/(Loss) Before Tax 1,091 518

Table 4: Debt-Equity (All Figures in INR Crores)

Particulars GTL Infra CNIL
Debt 4,895 5,207
Equity 2,460 6,596
Debt/Equity Ratio 1.99 0.79

The combined Revenue from Operations and EBITDA (Normalized) for the year ended March 31, 2017 of GTL Infrastructure Limited and Chennai Network Infrastructure Limited (CNIL), an Associate, would be as under-

Table 5: Consolidated Financials (All Figures in INR Crores)

Particulars March 17 March 16
Revenue from operations 2286.05 2145.51
EBITDA (Normalized) 1121.59 991.47
Nos. of Tenants 50845 45197
Net Debt post SDR implementation, as on 13th April 2017 was Rs. 4,625 Crores

Though the number of tenants have increased by 12.49%, there is a shortfall in the revenue because Aircel acquisition also included GTL Infrastructure’s first right to provide around 60,000 more tenancies that the operator was to add over the next two years. Not only did the new comers back out of commitments, so did Aircel due to cancellation of license by the Supreme court. Hence GTL Infrastructure Ltd is still incurring operating losses.

Conversion of Equity Shares from FCCB

Equity shares are allotted on exercise of options by FCCB holders as a part of SDR. Following are the details of the same:

Conclusion

GTL Infra has completed its first step in the SDR process last week. This includes converting the debt into equity shares and reducing debt of its combined tower companies (GTL Infra and CNIL) to a substantially low level, including proposed restructured bond amount. In the second stage CNIL will merge with GTLIL and the promoters stake in the merged entity will fall to 20 per cent after the debt restructuring. Just like one of the living 7 habits which states that if the outcome is clear, then the path is easy to go, on the same lines, the combined entity debt under SDR will come down tentatively to Rs 3,800 Crores by FY 2018, this will save company at some level by going into liquidation. As the lenders and the Company are on the same page when it comes to restructuring, it is proving to be a win-win situation to both lenders and the Company. Now let’s wait and watch as to which company , the banks will sell their stake to recover their dues in these 18 months’ given time. Company’s future is looking hopeful.

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