The latest round of rumours of the prospective sale of Reliance Infratel started in Q2 of 2015 and with a shortlist of potential buyers leaked later that year in August, Reliance Communication’s sale of its towerco subsidiary Reliance Infratel (RITL) has seen many twists and turns in the intervening months; these include a failed period of exclusive negotiation, the emergence of a new potential buyer, and then a merger announcement between Reliance Communications and Aircel.
Reliance Communications (RCom) owns a 96% stake in RITL with the remaining 4% stake owned by minority and institutional investors including George Soros’ Quantum, NSR Partners, Galleon, HSBC Daisy Investment, Drawbridge Towers, Investment Partners B and New Silk Route. Reliance Infratel has a portfolio of approximately 43,500 towers on which Reliance Communications is the anchor tenant. Anil Ambani’s RCom has a network sharing agreement with his brother Mukesh’s 4G provider Reliance Jio, and it is rumoured that Jio receives a substantial discount on its tenancies.
Reliance Communications is seeking to sell RITL to decrease its debt burden, and free up capital for spectrum auctions to support its drive to deliver 4G services. RCom gave an asking price of US$3.4 billion (INR220 billion). Moody’s Investor services stated earlier this year that RCcom had around US$7bn of adjusted debt as of 30 September 2015, which would decline by $1.5-2.6bn to about $4.4-5.5bn pro forma with the application of the proceeds from a sale if completed at the initial asking price.
A shortlist of buyers was released in August of 2015, and by December a non-binding offer for the towers was submitted by Tillman Global Holdings and TPG Capital, reportedly offering INR215bn (US$3.2bn) for RITL. The agreement had a thirty day limit for due diligence, which was extended by fifteen days in January 2016. After multiple extensions the negotiations reached an impasse over the significant valuation gap between the three parties.
Unconfirmed reports suggests that a proportion of the sites lacked structural capacity for additional tenants, either because they were designed for one tenant, or were already fully occupied by RCom and Reliance Jio. Ultimately this lead to TPG Capital being reluctant to underwrite the initial offer. Tillman Global Holdings’ exclusive negotiation period came to an end, and the company are now exploring alternate channels through which to enter the Indian tower market.
With the Tillman negotiation terminates, RCom was forced to resume the search for a buyer. The latest potential buyer to emerge is Brookfield Asset Management, one of the world’s largest infrastructure investors, which already has some exposure to the tower industry as a substantial stakeholder in French market leader TDF. However, Brookfield, with $240bn in global assets under management, reportedly initially valued RCom’s towers at roughly Rs 15,000 crore (US$2.78bn), significantly below the valuation that the telco is seeking.
Valuation differences aside, the RITL portfolio is still a compelling target for acquisition; it’s still a portfolio of scale in India, the last of its kind on the market. It offers a new entrant the last opportunity to enter the market at scale with a near all-India footprint
Brookfield are not the sole prospective buyer. Following upon its acquisition of Viom Networks in 2015, American Tower Corporation may not be finished acquiring assets in India, and could be another potential buyer for RITL. Some say that ATC may be interested in acquiring further assets to drive their portfolio to 100,000+ towers in India which would make them second only to Indus Towers in scale. American Tower is an exceedingly disciplined buyer - they won’t be persuaded to offer more than their models suggest a portfolio is worth, but if they were able to secure a ROFR (right of first refusal) from RCom, and if RCom were to moderate their valuation, American Tower may yet be interested in this acquisition.
The future of RITL is very much up in the air at this point. Beyond the significant questions about the valuation of the portfolio, the sale has been further complicated by the announcement that Reliance Communications is merging with Aircel. The merger is drawing away management bandwidth from the potential towerco sale, and the focus now will be on incorporating Aircel’s tower portfolio into the new combined entity. At this point TowerXchange feel that it is unlikely that RITL will change hands before the end of this year after the RCom/Aircel merger is complete; only then will it be possible to gain an accurate updated valuation.
Valuation differences aside, the RITL portfolio is still a compelling target for acquisition; it’s still a portfolio of scale in India, the last of its kind on the market. It offers a new entrant the last opportunity to enter the market at scale with a near all-India footprint.
