Bharti Infratel, Indus Towers planning merger to create telecom tower giant

Mumbai: Bharti Infratel Ltd and Indus Towers Ltd—two of India’s largest telecom tower firms—are planning to merge their businesses, three people aware of the matter said.

Vodafone India Ltd and publicly traded Bharti Infratel Ltd hold 42% each in Indus Towers. Idea Cellular Ltd owns 11.15% and US-based private equity fund Providence owns 4.85%.

Bharti Infratel was earlier planning to acquire a controlling stake in Indus Towers and make the latter a subsidiary.

According to that plan, Bharti Infratel was to acquire the stake it didn’t own in Indus Towers in an all-cash transaction and later sell the combined business to external investors.

“Both Vodafone and Idea wanted cash from the deal; now they want to stay invested in their tower business as they expect valuation of the business to go up in the near term. Also, the companies do not need cash at the moment,” said a person aware of the matter.

Vodafone India and Idea Cellular are set to merge this year to create India’s largest telecom operator, surpassing Bharti Airtel Ltd.

The merged entity of Vodafone India and Idea now expect to have additional cash of about Rs21,000 crore in the first year, which includes Rs6,750 crore raised by Idea through sale of shares to institutional investors, Vodafone’s investment of Rs6,750 crore and about Rs8,400 crore from savings in operational and capital expenditure, another person with direct knowledge of the matter said.

A Vodafone India spokesperson declined to comment while an email sent to Idea remained unanswered.

A Bharti Infratel spokesperson said, “As a policy, we do not comment on market speculation. Being a responsible corporate, we always make appropriate disclosures to the stock exchanges and our stakeholders as and when required.”

The decision to merge the two tower companies comes in the wake of Airtel’s announcement that it would list its Africa business to raise money.

The new arrangement will also give freedom to each of the stakeholders in the merged tower entity to sell their stakes at their convenience.

“It is all about financial benefit. Everybody is working on this. It is being done internally,” said this person.

The valuation of a tower whose tenancy rates used to be Rs50 lakh has now declined to Rs30-35 lakh, according to a Mumbai-based analyst with a brokerage.

The number of tower tenancies in India has also fallen from 500,000 to 400,000.

“There has been a price correction of about 20% in the industry,” the analyst said, requesting anonymity, citing examples of the tower sale by Vodafone India and Idea Cellular, who agreed to sell their standalone telecom tower businesses to ATC Telecom Infrastructure Pvt. Ltd in November.

“The tower sale was earlier pegged at Rs50 lakh per tower. However, Idea/Vodafone got about Rs40 lakh per tower from ATC in the deal,” the analyst said.

There would be a further price correction in the tower business after Vodafone and Idea complete their merger, which will lead to a decline in the number of towers required for the merged entity to function.

“The minute this merger (Idea-Vodafone) gets announced, the valuation of towers will go down further,” said the first person cited earlier, adding that valuation of tower business will start to go up when telcos will start investing massively to ramp up infrastructure to meet data demand, which is expected to go up from around 20 petabytes a day to about 120 petabytes a day in the near term.

“Once the telcos start announcing their capex, valuation will start growing up,” the person added.

The merged entity of tower companies will have 240,000 towers.