A subsidiary of American Tower Corporation (ATC) on Monday signed an agreement to buy 20,000 mobile towers owned by Vodafone India and Idea Cellular for $1.2 billion (Rs 7,850 crore at current exchange rate), kicking off a phase of consolidation.
ATC Telecom Infrastructure, earlier known as Viom, will be paying Rs 39 lakh per tower. According to experts, this is quite an attractive price for the buyer. Canada-based Brookfield was in race to buy Vodafone-Idea’s telecom assets, according to sources.
The price per tower is similar to what ATC had paid two years ago when it bought a 51 per cent stake in Viom Networks (42,000 towers) from the Tatas and Kanorias for Rs 7,635 crore. It had then paid Rs 35 lakh per tower.
A statement by Vodafone and Idea said if the deal goes through before the proposed merger of the two companies, Vodafone India will receive Rs 3,850 crore ($592 million) and Idea will receive Rs 4,000 crore ($615 million). DSP Merrill Lynch is the sole financial advisor to Idea for the deal.
Tower companies claimed current valuation in the market, especially with about 260,000 towers up for sale, varies from Rs 30 lakh to as high as Rs 70 lakh, depending on tenancy, as well as the length of the contract with a telco.
However, according to Morgan Stanley, the combined tenancy ratio of the Vodafone-Idea towers at 1.7 is expected to go down to 1.4, after removal of overlapping sites once the companies merge.
After the merger, as many as 6,300 co-located tenancies of the two operators on some towers will become single tenancies, in two years, without exit penalty. Thus, the tenancy will be much lower than that of ATC Infrastructure (2.2) and Bharti Infratel (2.4).
Tenancy, expressed as a ratio, is the number of companies that have put up active infrastructure or antennae on a particular tower.
With this deal, ATC will command over 80,000 mobile towers across India, with a market share of around 19-20 per cent. That will make it a clear second-largest player in the business, but it will still be only half the size of the number one player, expected to be formed with the Indus Towers and Bharti Infratel combine.
Bharti Infratel has already proposed acquiring a majority or full stake in the country’s largest tower operator, Indus Towers, making it a subsidiary. Stakes of Idea, Vodafone and others will also be bought out.
It then plans to sell a controlling stake in Bharti Infratel to a consortium led by KKR. The combined entity will have a little more than 160,000 towers.
ATC has faced a setback with two of its clients — Tata Teleservices and Telenor — selling their businesses to Bharti Airtel. They accounted for 40 per cent of ATC Infrastructure’s revenues. Airtel has provided no assurance it will continue to use ATC’s towers.
Sources said Bharti will continue to keep at least half the towers, as it needs to expand its capacity, especially to take on new entrant Reliance Jio.
ATC also has an assurance that Tata Teleservices will pay about Rs 7,000 crore for the residual life of the towers — the term ends in 2023 — in case Bharti does not continue with tenancies. It could tell analysts to adjust the balance by giving a part of its stake in ATC Infrastructure to ATC.
ATC is also on a lookout for other acquisitions, a strategy it has used effectively to grow its business in the country. It is also one of the contenders to buy out about 37,000 towers to be sold by GTL Infrastructure and Tower Vision, two of the smaller players in the business.
Also, the US infrastructure company has shown an interest in talking to Reliance Communications, whose 43,600 towers are up for sale, even though they declined to comment on the issue.
With its earlier deal with Brookfield to buy a 51 per cent stake in the tower business for Rs 11,000 crore now called off, a key element in Reliance Communications’ debt-restructuring plan includes the sale of its tower assets for part-payment of its Rs 40,000-crore debt.
The valuation of tower companies has fallen substantially — in 2010, ATC bought the towers of Essar at a value of Rs 45 lakh. GTL had also picked Aircel’s towers at a similar rate.
However, Brookfield, which had agreed to pay Rs 49 lakh for each tower to RCom, decided not to go through the deal as the expected tenancies from Aircel and even RCom have not fructified.
Source : business-standard.com