The merged entity, which will be second only to China Tower, will change its name to Indus Towers and continue to be listed on the Indian stock exchanges
Telecom major Bharti Airtel on Wednesday said it will hold talks with potential investors for a strategic sale in the merged telecom tower entity Indus Towers.
The proposed move comes after the company earlier announced the merger of its tower arm Bharti Infratel with Indus Towers that will help create the world's second-largest tower company with 163,000 towers across India.
The merged entity, which will be second only to China Tower, will change its name to Indus Towers and continue to be listed on the Indian stock exchanges.
Bharti Airtel, the majority owner of Bharti Infratel, will hold between 33.8% and 37.2% stake in the merged entity and share equal rights with Vodafone.
The deal is expected to close before next March-end.
BNP Paribas said with the announcement of the merger of Bharti Infratel and Indus Towers, Idea will be able to deleverage its balance-sheet and it is a positive for all stakeholders.
"For Infratel, this means a pan-India presence. The lack of any lock-in on operator shareholding could lead to some overhang on the stock.
Though, cash requirements at the telco business will force telcos to trim their stake over time," it said.
Indus Towers operates in 15 telecom circles while Bharti Infratel is present in the remaining seven. The merger will create a pan-India telecom tower entity.
Shareholders of Indus Towers -- Bharti Infratel, Vodafone, Idea and private equity firm Providence -- will receive 1,565 shares of Bharti Infratel for every share held. Vodafone, which currently has a 42% stake in Indus Towers, will get between 26.7% and 29.4% in the merged entity depending on the options two other shareholders in Indus – Idea and private equity firm Providence – exercise.
Idea has an option to sell its 11.2% stake in Indus for about $1 billion or receive new shares in the combined company. Providence has the option to encash or get shares aggregating 3.35% against its current 4.85% holding in Indus.
The new Indus Towers Board will have 11 members - three each from Bharti Airtel and Vodafone, one from KKR or Canada Pension Plan Investment Board and four independent members.
KKR and CPPIB last year bought more than 10% of Bharti Infratel.
"The merger ratio of 1,565 shares of Bharti Infratel for every one Indus Towers share is within the range recommended by the independent valuer. Based on the Sebi pricing guidelines for Bharti Infratel, in relation to the proposed scheme, as at 23 April 2018 (Rs 363 per share), the merger ratio implies an enterprise value for Indus Towers of $10.8 billion. This is equivalent to valuing Indus Towers at 9.3x EV/LTM EBITDA," the statement said.
However, the final number of shares to be issued to Vodafone and the option of cash payment or share issuances to Idea Group and Providence will be subject to closing adjustments, including but not limited to movements in net debt and working capital for Bharti Infratel and Indus Towers.
The transaction is conditional on regulatory and other approvals from the Competition Commission of India, Securities and Exchange Board of India, National Company Law Tribunal, Department of Telecom, and is expected to close before the end of the financial year ending March 31, 2019.
The deal comes ahead of the likely merger between Vodafone's Indian unit and Idea Cellular. Vodafone and Idea had earlier said they would look at selling their stakes in Indus, and also dispose of other tower assets they separately own to help cut debt in the merged tower firm.
The mobile industry, in a consolidation phase, has now spilled to tower firms as many small and marginal operators have either shut their shop or are in the process of wrapping it up. This has impacted the tenancy ratio in the tower firms, putting a pressure on the margins. State-run telecom firm BSNL is the other major player with huge tower assets.
Credit Suisse in an analyst note said an immediate benefit is saving on dividend distribution tax – an annual run rate of Rs 500 crore.
STANDING TALL
- 163,000 towers – Merged entity will have across India
- 33.8% to 37.2%-- stakes will be held by Vodafone and Bharti each
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