The pace of potential major transactions in India continues with Reliance Communications’ announcement this week of the pending sale of Reliance Infratel, which owns India’s third largest tower portfolio (~52,000 towers), also the fourth largest in the world. The process of finding a buyer began midway through the year as Reliance Communications looked for options to decrease its debt and improve cash flow to support infrastructure rollouts and bids for 4G spectrum.
Reliance Communications entered a non-binding exclusivity agreement with Tillman Global Holdings and TPG Asia for the sale of RCOM’s Indian tower portfolio and related infrastructure. This was extended to the end of January, and the market is still waiting for further updates. According to RCOM’s press release, the new entity would be 100% owned by Tillman and TPG, and RCOM would continue as the anchor tenant under a long term MSA to maintain its nationwide footprint. Due diligence on the tower assets and the regulatory approval process are still ongoing. There is also a separate discussion regarding the acquisition of RCOM’s nationwide inter-city and intra-city fibre assets by Tillman and TPG in a separate transaction.
According to RCOM’s announcement the sale of Reliance Infratel is to have an enterprise value of Rs 22,000 crore (US$3.3bn), however with a significant amount of debt to be transferred to the new entity, the capital outlay for TPG and Tillman will be much lower. The recent sale of Viom Networks to American Tower Corporation has provided a new benchmark for the valuation of towers in India, but Reliance Infratel’s tenancy ratios are estimated by TowerXchange at 1.84 which lags that of Indus Towers and Viom Networks which are both over 2.0.
Rcom currently owns a 96% share in Reliance Infratel; the remaining 4% is owned by other investors including George Soros’ Quantum (M), NSR Partners, Galleon, HSBC Daisy Investment (Mauritius), Drawbridge Towers, and Investment Partners B (Mauritius).
Rcom will maintain its tenancy on the towers in this portfolio to keep its all-India footprint as it continues to expand its services. Reliance Jio is the primary second tenant, with rumors that they had secured a discounted lease rate prompting a suggestion this may be offset by an elevated anchor tenant leaseback rate.
A look at the buyers
Tillman Global Holdings was created in 2013 by Sanjiv Ahuja, Founder and Chairman of Apollo Towers Myanmar and until recently Chairman of Eaton Towers. Previously Ahuja served as CEO and COO of Orange from 2003 to 2007, and as Chairman of LightSquared. TGH’s subsidiaries also include Staghorn Infrastructure, a new US tower builder, operator and ground lease aggregator; JC Decaux-Link, a market-leading shared small-cell infrastructure provider; and Tillman Green, which builds renewable green energy solutions.
TPG has experience in the telecoms sector including the acquisition of the French towerco TDF in 2006 which it later sold in 2014, and the backing of Apollo Towers infrastructure rollout in Myanmar. This is TPG’s first major telecoms transaction in India, but it has invested in other sectors in this market including health and retail. TPG currently has US$74.3bn in capital under management.
It is now confirmed that the sale of Reliance Infratel has been planned to reduce Rcom’s debt which stood at nearly US$6bn at the end of 2014
Overview of the Indian market
The Indian telecoms market is the second largest in the world with 941mn mobile connections. There are an estimated 450,000 towers deployed in India, providing coverage of 90% of its geography. 70% of these towers are currently operated by towercos, and the prevailing tenancy ratios of India’s five largest towercos are around 1.7, with many towercos having ratios at 2.0 or above. India’s cellular operators and towercos have built an average of 50,000 new towers per year to keep pace with the growth of data services in the Indian market. It is estimated that operators and towercos will need as many as 600,000 new points of service (combining new towers and co-locations) to meet the growing demand for 3G and 4G.
Spectrum auctions
The race for spectrum is having a major impact on this market with Indian operators spending close to US$50bn on auctions over the past four to five years; these auctions are ongoing and expected to continue until 2018-2019. Rcom has expressed strong interest in gaining ground in the competition to deliver 4G services in India.
It is now confirmed that the sale of Reliance Infratel has been planned to reduce Rcom’s debt which stood at nearly US$6bn at the end of 2014, and to free resources for future service development. Rcom is in fierce competition for spectrum with the top three Indian carriers: Bharti Airtel, Vodafone India, and Idea Cellular and they invested heavily in the latest auctions, having made bids worth Rs 4,299 crore (US$671mn) with an upfront payment of Rs 1,106 crore (US$172mn) to become the first Indian carrier with a nationwide 800MHz footprint for future 4G rollouts. Reliance Communications also entered an agreement to share spectrum in the 800MHz band across seven of India’s telecoms circles with Reliance Jio which will further boost its footprint.
What to expect next
The Indian tower industry will also be looking out for the next major tower transaction in 2016, with the proposed creation of a new carved out tower company with an estimated 64,500 towers by BSNL expected to be in the works. BSNL’s towers have a low tenancy ratio at 1.1 but are in highly desirable locations, meaning the towerco could be another valued above US$3bn.
