Reliance, GTL Strike $10.8B Tower Deal
Reliance Infratel, the mobile tower arm of Reliance Communications Ltd. , has agreed to merge its 50,000-tower portfolio with that of GTL Infrastructure Ltd. in a cash and stock deal valued at 500 billion Indian Rupees (US$10.83 billion), one of the largest merger and acquisition transactions ever in India. (See Reliance, GTL Merge Tower Units.)
The deal, expected to be completed by November, will create the world's largest independent wireless passive infrastructure company, which will operate as GTL Infrastructure.
It will have around 80,500 towers and more than 125,000 tenancies from over 10 Indian telecom operators, including Reliance Communications, Aircel Ltd. , Bharti Airtel Ltd. (Mumbai: BHARTIARTL), Etisalat DB (Cheers Mobile), Idea Cellular Ltd. , Vodafone India , Sistema Shyam TeleServices Ltd. (MTS India), Uninor , Videocon Mobile, Tata Teleservices Ltd. , and S Tel Pvt. Ltd.
GTL had already expanded its portfolio earlier this year with the INR84 billion ($1.84 billion) acquisition of Aircel's 17,500 towers.
GTL says it also has "a firm option of additional 75,000 tenancies from leading players," and expects to attract further business from the full range of mobile and broadband wireless access (BWA) service providers, including those companies that were recently awarded new licenses following the 3G and BWA spectrum auctions. (See India's BWA Auction Ends in $8.2B Drama and India's 3G Auction Ends, Raises $14.6B.)
The move had been anticipated, with the Indian business media identifying GTL as a likely merger partner. (See Trio Chase Tower Deal.)
The deal, which will help Reliance Communications tackle its INR300 billion ($6.4 billion) debt pile, secured a relatively high price per tower for Reliance Infratel, compared with previous wireless passive infrastructure deals, because of the high average tenancy per tower of 1.7 customers. By comparison, Aircel's towers had an average tenancy of 1.2.
"The valuations work out to be INR7 million [$151,000] per tower for Reliance Infratel, which is at a significant 46 percent premium to the INR4.8 million [$104,000] per tower valuation in the recent Aircel/GTL deal," notes Harit Shah, IT and telecom research analyst at Hyderabad-based Karvy Stock Broking Ltd.
"Reliance has been able to command a handsome premium owing to its higher tenancy ratio and strong client base," adds Shah.
Once the deal is closed, though, Reliance will have to start paying to use the towers, so adding to its operating expenses, notes the analyst.
"The net revenue of Reliance Communications will not see many major changes, but the company will witness a steep 50 percent decline in EBITDA [earnings before interest, tax, depreciation, and amortization] owing to the fact that it will have to pay lease rentals to the tower company formed," Shah explains.
While the resulting tower company will be independent of any telecom operator, Reliance Communications chairman Anil Ambani is expected to take a personal 25 percent stake in GTL, according to a report from Business Standard.
While it's divesting its tower business, Reliance Communications has decided to hold on to another of its assets that was also expected to be sold: its 200,000-kilometer pan-India optical fiber infrastructure. The carrier expects to see an increase in demand for wholesale capacity on that network once 3G and BWA services are launched by the license-holders.
— Gagandeep Kaur, India Editor, Light Reading