Brookfield to acquire towers, BTS pipeline from Jio

December was definitely not a slow month for the global telecom infrastructure industry, with deals and other exciting news popping from all four corners of the globe. One of the news TowerXchange was eagerly waiting for related to the progresses of the Reliance Jio Infratel-Brookfield deal, which – after the binding agreement sealed last month – is now one step closer to completion. Lets revisit what we know about it, following my previous editorial which can be found here.

This past December, Brookfield Infrastructure Partners signed a binding agreement to acquire 100% of Reliance Jio Infratel from Reliance Industrial Investments and Holdings Limited, a wholly owned subsidiary of Reliance Industries Limited. The total equity requirement for the deal is US$3.7 billion, financed by Brookfield alongside its institutional partners, as required by Indian law.

Indian law requires a minimum number of independent shareholders to participate in certain types of investments. For this deal, Brookfield gathered multiple investors but will retain control and management of the acquired assets.

Under the terms of the deal, Brookfield capitalised on its existing relationship with Reliance Industries. In March 2019, Brookfield announced the acquisition of the loss-making East West Pipeline – previously known as Reliance Gas Transportation Infrastructure – for approximately US$2bn. An acquisition which created the basis of Brookfield’s relationship with Mukesh Ambani, and a good platform on which to negotiate the Reliance Jio Infratel deal.

Based on the existing relationship with Reliance, Brookfield may have enjoyed a competition-free process. While other prospective buyers had previously reviewed opportunities to acquire towers from parts of the Reliance family – notably Tillman Global Holdings taking a look at Reliance Infratel – it seems there was no formal, open process to sell the larger Reliance Jio Infratel portfolio. Prospective competitive bidder American Tower was in the process of purchasing Idea and Vodafone portfolios when the negotiations started, hence probably wasn’t in a position to buy more assets due to antitrust laws. On the other hand, Indus Towers and Bharti Infratel have been in the process of merging for quite some time now – another party prevented from engaging in negotiations.

The deal is now subject to regulatory approval.

Reliance Jio Infratel currently has a portfolio of approximately 130,000 towers, most of which are ground based towers but including some rooftops, and all focused outdoors. The portfolio includes about half of Reliance Infratel’s most attractive assets. The towerco is planning to add 45,000 further sites within the twelve months, which may include further existing towers from the Reliance Infratel portfolio, but which will not include zero tenant towers. Reliance Jio Infratel continues to deploy sites at a staggering pace and, while it’s true that many of them are monopoles or light poles with finite additional lease-up capacity, the real value of those sites is in their locations, which are very often in highly strategic urban areas, backed by “good paper” (clean land leases under sensible terms). Additionally, most of the sites are connected by fibre backhaul; less than half India’s total tower stock is fiberised, emphasising the value of the Reliance Jio Infratel sites.

While the acquired portfolio isn’t coming in with an existing high tenancy ratio, tower cash flow growth potential is considerable thanks to Jio Infocomm’s aggressive coverage targets. Reliance Jio Infratel will build an additional 45,000 towers, in alignment with the MNO’s expansion plan, and will hand them over to Brookfield on completion, separating the investor from any execution responsibility. The towerco will retain operational and technical control of the assets, due to its experience and capillary presence in the Indian territory.

Perhaps the most exciting piece of news regarding the deal is that Jio is an anchor tenant of the portfolio under a 30-year Master Services Agreement, while the towerco enjoys something similar to a right of first refusal on the deployment requirements of the MNO in the future. The agreement is unusually long, and guarantees to Brookfield and Reliance Jio Infratel a predictable, long term recurring revenues from the most investible and fastest growing MNO in India.

Brookfield enters the Indian telecom infrastructure market at a time of great turbulence, but also at what seems to be the end of a long sustainability crisis for MNOs. After a couple of tough years of restructuring, bankruptcies and mergers, India is now down to four MNOs, namely Vodafone Idea, Jio, Airtel and BSNL, from over ten in 2018. For those who survived, India still presents huge growth opportunities and soaring data demand isn’t likely to slow down anytime soon. Additionally, the recently agreed tariff increases are set to finally return the Indian mobile market to a more rational and sustainable structure.

India could still present acquisition opportunities for Brookfield, especially as more portfolios from troubled private towercos – and possibly from BSNL/MTNL – might come to market. But the Reliance Jio Infratel deal is per se an excellent entry move, especially in light of the close tie with Jio, which offers the towerco a long runway for organic growth and for lease-up.

TowerXchange will report as more news regarding the deal and the new shape of the Indian telecom infrastructure market unfold.

Brookfield has been active in various segments of communications infrastructure for many years, most notably in the tower sector as a substantial investor in French broadcast and telecom towerco TDF. Within weeks of announcing the Reliance Jio Infratel deal, Brookfield also acquired Wireless Infrastructure Group in Europe.

With extensive experience of owning and operating assets in India, the Canadian infrastructure fund has long harboured an appetite for Indian towers, and they’ve finally pulled the trigger on what looks like a great partnership. It’s a good time to buy in India: tower valuations in India are as low as they have been in the last decade.

The value of this deal is not so much in the vertical real estate – although Reliance Jio Infratel’s towers are among the most modern in the country. The real value is in the strength and appetite to invest of the anchor tenant. Jio is the most attractive counterpart for a towerco in Indian telecoms at the moment, with soaring growth, disruptive innovations, and a determination to consolidate their leadership with continued investment. With this deal, Brookfield secures not just Jio’s existing towers, but their foreseeable pipeline of new build.

By the time 45,000 further Indian towers are added to the portfolio, Brookfield could be second only to China Tower among the largest tower owners in the world.