Gtl -- R-Infratel Merger

[kesav 127]

GTL May Be Largest Shareholder Post Merger With R-Infratel

Anil Ambani's shareholding may be in personal capacity; May explore separate deal for fibre optics.

Manoj Tirodkar-led GTL Infrastructure Ltd may hold over 33% stake and will be the largest shareholder in the proposed combine with ADAG Chairman Anil Ambani's Reliance Infratel (R-Infratel), sources familiar with the development said. Both Reliance Infratel and GTL are in serious discussions to merge their operations resulting in a listed entity with over 86,000 telecom towers.

Sources added that Mr Ambani's stake in the entity, estimated to be around 26%, will be mostly in his personal capacity. And GTL's payout as part of the transaction will be made to both Reliance Communication as well as the personal investment vehicles of its promoter.

"GTL and Mr Ambani will be the two principal shareholders in this combined entity, with the former being the largest shareholder as it would like to go forward as independent tower operator post merger. GTL could hold around 33-35% stake, or anywhere between 30% and 40% as per the current discussions," said a source, who did not wish to be named.

While a few private equity giants have shown interest to participate in the merger, sources added it was unlikely to materialise at this point of time. Again, the entry of a third foreign strategic player

like Saudi Telecom into the combine, as suggested in recent media reports, is also being ruled out for the time being. "These are later day stories," sources added.

Besides the two main shareholders, the merged combine will continue to have the existing financial investors in Reliance Infratel and about 25% public participation as per the listing norms. The promoter controls 95% stake in R-Infratel with financial investors, including New Silk Route Private Advisors, holding the remaining 5%.

Meanwhile, speculation is also gaining ground that Reliance Infratel's fibre optic operations may not be part of the proposed merger with GTL Infra. It is likely to be spun off into a separate deal even though sources directly involved with R-Infratel's dealmaking refused to comment on it.

Earlier, RCom had transferred its domestic as well as international fibre optics operations (parked with FLAG Telecom) into Reliance Infratel. The fibre optics play is spread across 1,50,000 km in India, US, Europe, Middle East and Asia Pacific.

When contacted, a GTL Infrastructure said, "we do not comment on speculations. An email sent to RCom spokesperson remained unanswered at the time of publication of this article.

On June 13, RCom announced that it was restructuring the ownership of its subsidiary Reliance Infratel through a demerger or other options, and said talks were ongoing with several domestic as well as international suitors to create the world's largest independent telecom tower company.

While there is not much clarity on valuations, deals over the past six months have valued telecom towers anywhere in the range of Rs 45 lakh to Rs 55 lakh. This could value R-Infratel anywhere between Rs 22,500 crore and Rs 27,500 crore.

The passive telecom infrastructure industry has also gone through a wave of consolidation in recent times with independent players buying operations of captive firms.

The consolidation started when Quippo Telecom Infrastructure (QTIL) merged with Wireless-TT Info-Services Limited (WTTIL), the tower arm of Tata Teleservices Limited early last year. Another deal was when US-based American Tower Corporation (ATC) acquired Essar Telecom Infrastructure Private at an enterprise value of Rs 2,000 crore. ATC has also acquired small telecom tower companies like Xcel Telecom and Transcend Infrastructure in the last one year.

The largest deal was when GTL Infrastructure paid Rs 8,400 crore ($1.84 billion) to acquire Aircel's tower business. GTL acquired 17,500 telecom towers, increasing its tower count to around 32,000 sites, at a valuation of Rs 48-49 lakh per tower. At the time of Aircel deal, GTL Infra said, it plans to increase its current tenancy ratio of 1.2 times to 2.3 times in the next three years.

R-Infratel has a tenancy ratio of 1.75 times, most of which is accounted for by Reliance Communications. It has signed up customers like Etilsalat DB, STel, Sistema Shyam (branded as MTS), Aircel, Tata Teleservices,among others. R-Infratel reported revenues of Rs 4,934 crore with a profit after tax of Rs 1,685 crore in FY09.

RCom has embarked on a stake sale, which also includes selling a 26% stake to a strategic investor in the telecom business, in order to cut its massive debt. RCom had a net debt of Rs 19,889 crore at end of March' 10, which increased to around Rs 28,500 crore after the recently concluded 3G auctions. This further increases if we include Rs 5,600 crore in interest-bearing vendor liabilities. Stake sales in oth RCom and R-Infratel could help the India's second-largest telecom company by subscribers nearly wipe out its entire debt.

It is believed that unlocking of value from the infrastructure business will precede a stake sale in the parent RCom, which is holding early discussions with Etisalat among others for divesting up to 26% stake in India's second largest mobile operator.

source :: http://www.vccircle.com/500/news/gtl-may-be-largest-shareholder-post-merger-with-r-infratel

[kesav 127]

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 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.

source:: http://economictimes.indiatimes.com/News/News-By-Industry/Telecom/RCOM-merges-tower-biz-with-GTL-Infra/articleshow/6099463.cms?curpg=1

[csmart 472]

At one go he redcued his debt by more than 50%.. its really good busniess deal.. now he may not need to sell 25% stake. can offload less thatn 25%..

[KumaarShah 143]

All the newspapers etc are talking about the debt reduction of around US$3.9 billion, but no one has talked about how much erosion of RCOM's assets will take place by this merger. Somehow, it does not gel at all. From the size of the deal, Rs 50k crore worrth of towers etc are to be transferred to the new merged company. If so, this much 50k crores value will get eroded from RCOM. I am not sure if my thinking is correct. Does the shareholders of RCOM get this much in return? (proportionately, of course) The share value of RCOM should in fact come down, by this de-merger anIs my logic right?d re-merger.

Edited June 28, 2010 by KumaarShah

[KanagaDeepan 1,084]

RCom has sold 50000 towers for 50k crores, so approx. 1 tower sold for 1C.. But cost of tower is anywhere between 40 to 60L only... So with extra 40L (per tower) RCom can pay rental for towers for few years imho..

OK.. What will be the benefit (if exists) for RCom users by this deal??? Simply put, this deal is good or bad for RCom users like us here???

[csmart 472]

RCOM GTL deal called off.

Economic Times