RCOM merges tower biz with GTL Infra

MUMBAI: Reliance Communications (RCOM) on Sunday announced a deal that would see its tower business combine with smaller rival GTL Infrastructure to create what it claimed would be the world’s largest independent telecom tower company with an enterprise value of Rs 50,000 crore and 80,000 towers. The GTL Infra-RCOM deal is one of the biggest domestic M&A deals.

The transaction will help RCOM reduce debt by more than half, as the Anil Ambani-led company prepares to roll out high-speed wireless services known as 3G.

RCOM will demerge its tower arm, Reliance Infratel, into GTL Infrastructure and receive stock and cash in return, the companies said in separate press statements. RCOM shareholders will receive shares of GTL Infrastructure, and the company will get money from the transaction, the statements said.

The exact amount of money and the shares to be given by GTL will be determined later with the help of independent valuers and advisors. The transaction is expected to be closed in six months. ET was the first to report on the structure of the RCOM-GTL deal in its June 17 edition.

A banker in the know of the deal said Mr Ambani is likely get at least a 26% stake in the combined entity while Manoj Tirodkar, the owner of GTL Infra, would get around 30-35%. The shareholders of RCOM, other than Mr Ambani, would get 24% and equity-holders of GTL Infra the rest, numbers reported in the ET story. “The deal is being done in such a way as to ensure the neutrality of the tower company,” the banker said.

“RCOM shareholders may get a 50% stake in the new tower company being created by the transaction,” said Rahul Jain, telecom analyst with Dolat Capital. “Reliance Infra is going to contribute half of the new company’s tower assets.”

While details are not available, the core of the transaction involves a massive debt reduction, of around Rs 18,000 crore, for RCOM. This debt, which consists of shareholder loans by the owner of RCOM, the Anil Dhirubhai Ambani Group, or ADAG, as well as overseas loans, will have to be serviced by the new tower company. The shareholder loans, when repaid by the new tower company, will come back as cash to the parent company.

RCOM, which has said it is planning to induct a strategic partner, will see its debt immediately come down to Rs 15,000 crore once the deal is done.



“If RCOM then manages to sell a 26% stake to a strategic investor, it will be a debt-free company,” Mr Jain said, referring to RCOM board’s approval on June 6 to sell a 26% stake to a strategic investor. After the deal, Reliance Infratel will retain only a part of the debt that raised for its optic fibre network business, which is not part of this transaction.

GTL’s funding plans

GTL Infra, which will taking on a huge chunk of RCOM’s loans, will raise money by a combination of equity and debt, said a person with direct knowledge of the deal. For the equity part, it is in talks with potential private equity investors, including Blackstone, while debt will be organised by Standard Chartered Bank and SBI Capital Markets, said the person who did not wish to be named.

The person close to the matter said the deal puts the combined value of debt and equity of Reliance Infratel at Rs 30,000 crore. GTL is valued at Rs 20,000 crore.

He said GTL now has 30,000 towers and plans to add another 20,000 soon, which will take the total tower count to 100,000. Reliance Infratel has 50,000 towers

Independent Tower company

The combined entity will have over 80,000 towers now with 125,000 tenancies. RCOM will be the largest tenant. The other tenants include Aircel, Etisalat DB Telecom, MTS, Uninor Telecom, Videocon Mobile, Tata Teleservices, Vodafone and S Tel.

Unlike other tower firms, no telco will have a significant stake in the new company being created by the deal, making it the world’s largest independent tower company. In India, the largest tower company is Indus Towers with 100,000 towers and owned by Bharti Airtel, Vodafone Essar and Idea Cellular.

“Based on developments in the Indian telecom sector, including the likely future demand for telecom infrastructure across the country from 14 players in 2G, and winners in the recent auction for 3G (nine players) and BWA (broadband wireless access — eight players), the merged entity is expected to derive substantially higher tenancy ratios, apart from scale benefits and operational synergies,” said the media statement of RCOM and GTL. Standard Chartered Bank was GTL’s financial advisor to the deal.

Dolat Capital’s Mr Jain said the stock market is unlikely to react to the deal because the structure of the transaction was mostly known and, therefore, was factored in the movement of both RCOM and GTL. The RCOM stock closed at Rs 192.50 on Friday, putting the market capitalisation at nearly Rs 40,000 crore. The GTL Infrastructure stock closed at Rs 45.35 on Friday, putting the company’s market capitalisation at Rs 4,341 crore.

GTL Infrastructure is a part of the Global Group, which has seven companies with combined revenue of Rs 7,000 crore. GTL Infrastructure is the only listed tower company in India. GTL builds and manages towers and tower infrastructure while GTL Infrastructure owns them. GTL Infrastructure bought 17,000 towers from Aircel, majority owned by Malaysia’s Maxis, in January in a deal valued at Rs 8,400 crore. GTL Infrastructure took on Aircel’s debt of Rs 4,500 crore and paid Rs 3,900 crore cash for the transaction.