Bharti Infratel, India’s sole listed telecom tower company, is exploring a mega stake acquisition in larger peer Indus Towers that could be the largest consolidation move in the industry.
“The board of directors of Bharti Infratel in their meeting held on October 30 has decided to explore and evaluate acquisition of stake in one or more tranches in Indus Towers, with the aim of making it a subsidiary or wholly owned subsidiary of Bharti Infratel,, the tower arm of Sunil Mittal-led Bharti Airtel said in a stock exchange filing on Monday after mark hours.
Bharti Infratel is likely to shortly constitute a board-level committee to examine the Indus stake acquisition opportunities, said a person with direct knowledge of the matter. The company, however, has not indicated any immediate timeline on a potential deal closure or financial details.
Majority owned by India’s largest telco Bharti Airtel, Bharti Infratel already holds 42% of Indus Towers, which is among the largest wireless infrastructure companies in the world with 123,000 towers. The remaining shares in Indus are held by Vodafone India (42%), Idea Cellular (11.15%) and Providence Equity Partners (4.85%). Infratel on its own runs 39,264 towers.
Bharti Infratel and Indus combined currently run nearly 41% of the total towers in India and account for 49% of co-locations. Bharti Infratel shares rose 2.52% to close at Rs 429.90 on the BSE on Monday.
ET, in its October 11edition, had reported that Bharti Infratel could buy out all or most of the 58% shareholding of other partners – Vodafone India, Idea Cellular and Providence Equity Partners – in Indus Towers, in what was likely to be the first stage of a two-part deal.
ET further reported that the second stage was likely to see a consortium led by US buyout fund KKR, and including Canada Pension Plan Investment Board (CPPIB), Abu Dhabi Investment Authority and GIC Singapore acquire an Indus-Bharti Infratel combined entity for $11billion.
Vodafone is likely to retain an 8-10% stake to enjoy any future upside. Infratel has the right of first refusal on the stakes of Vodafone and Idea in Indus Towers, ET had reported.
A person familiar with the matter said Bharti Airtel, at its board meeting on Tuesday, may consider Airtel’s sale of its stake in Infratel to the KKR-led consortium.
As per the latest shareholding figures, Bharti Airtel controls 58% in Bharti Infratel while KKR-CPPIB owns 10.33% after its $952-million investment made in March this year when it bought some of Airtel’s stake. The remaining Infratel stake is held by public shareholders. Eventually, Bharti Airtel is likely to exit its residual stake to deleverage its balance sheet, which had net debt of Rs 87,840 crore ($13.5 billion) on March 31. The current market cap of Bharti Infratel is Rs 79,515 crore. In August, Bharti Airtel had sold a 3.65% stake in Infratel for Rs 2,570 crore at about Rs 380 per share.
Vodafone India and Idea, the country’s second and third-largest telcos, which are in the process of merging their businesses to create India’s largest phone company, are known to be looking to sell off their stakes in Indus along with their standalone towers to strengthen their combined balance sheet to better take on competition from both Bharti Airtel and newcomer Reliance Jio Infocomm.
Experts see Bharti Infratel as the most likely buyer of the Vodafone and Idea stakes and in turn consolidate Indus under the listed tower company controlled by the country’s leading telecom service provider Bharti Airtel.
More so given Bharti Infratel’s strong net cash reserves of over Rs 4,400 crore, especially since data growth requires capex-intensive fibre rollouts.
Infratel has free cash flow of over Rs 12,000 crore.
NET PROFIT FALLS
Bharti Infratel’s plans to buy Indus came on a day it reported a 17% on-year drop in net profit in the fiscal second quarter, hit by a slump in finance income and higher costs, mainly on rent and fuel. Bharti Infratel’s consolidated net profit for the July-September period was Rs 638 crore.
Net finance income crashed to Rs 10.9 crore, from Rs 247.2 crore a year earlier. Consolidated revenue, in turn, rose 11% on a like-to-like basis to Rs 3,648 crore, the company said in a statement.
Bharti Infratel said it sees an upside in increased network investments announced by carriers and from the government’s smart cities programme which will allow network providers to create usable infrastructure.
“Indian telecom has embraced the data-centric model and is emerging as the showcase of digital technology and India planning a leadership role on upcoming 5G technology and associated applications, Akhil Gupta, chairman, Bharti Infratel, said.
Source: Economic Times