Bharti Infratel may seek 30% cut from Providence Equity

KOLKATA: Bharti Infratel is likely to push for at least 30% cut in its cash payout to Providence Equity Partners under the terms of its planned merger with Indus Towers, if the US private equity firm decides to monetise its Indus stake.

This is because Providence’s minority stake in Indus is reckoned to have seen a sharp value erosion since the Bharti Infratel-Indus merger was announced nearly two years ago, industry executives aware of the matter said.

Assuming a 30% erosion in value, Providence would net Rs. 1,400 crore for 3.35% stake in Indus from Bharti Infratel instead of an estimated Rs. 2,000 crore valuation for the bloc at time of the merger announcement in April 2018, the executives said.


“Providence’s stake in Indus might see at least a 30% value erosion, much like VIL’s (Vodafone Idea’s) stake under the changed telecom industry scenario, with the sector down to just three private players and the average (tower) sharing factor for Bharti Infratel down to 1.85 from 2.3 back in March 2018,” said Rajiv Sharma, research head at SBICap Securities.

What’s the formula?
The changed industry contours have also dented Bharti Infratel’s market capitalisation, which has plunged from Rs. 60,279 crore ($8.3 billion approximately) on April 25, 2018 – date of the merger announcement – to Rs. 39,878 crore ($5.5 billion) now.

Under the merger terms, Providence, which has a 4.85% stake in Indus Towers, can monetise a 3.35% bloc for cash, and will get a 1.1% stake in the combined tower entity in exchange for its balance 1.5%. It is expected to eventually sell its stake in the combined entity as well, industry insiders said.

The cash consideration, payable by Bharti Infratel, is based on an agreed formula. But the Bharti Airtel owned tower firm may “renegotiate the valuation terms of the cash consideration payable to Providence,” an industry executives told ET.

Providence and Bharti Infratel did not reply to ET’s queries as of press time Sunday.

Experts said viability of the Bharti Infratel-Indus merger would become uncertain if Vodafone Idea collapses, as a large chunk of the merged entity’s future tenancy revenue would be coming from VIL.