Tuesday, June 15, 2010
RCom to recast Reliance Infratel
On 6 June, RCom received board approval to sell 26% equity in the company to strategic or private equity investors
Mumbai: Reliance Communications Ltd (RCom), the telecom services arm of the Reliance Anil Dhirubhai Ambani Group (R-Adag), will spin-off its telecom tower business, the company said on Monday. The telecom tower business is run by RCom subsidiary Reliance Infratel Ltd.The boards of RCom and Reliance Infratel have approved a proposal to restructure the ownership of Infratel and this will be “implemented through a demerger and/or other suitable value creating options vis-a-vis Infratel’s assets”, an RCom statement said, making it clear that the firm is ready to sell part of its stake in Infratel.
Without getting into details of possible buyers and valuation, the statement added that the “consideration” would be received “in a combination of cash and stock”.
It has been reported on Monday that Infratel, in which RCom owns 95%, might bring in a potential investor ahead of a proposed stake sale in RCom to improve the valuation of the flagship firm by reducing its debt burden.
On 6 June, RCom received board approval to sell 26% equity in the company to strategic or private equity investors.
RCom’s shares rose 3.71% on the Bombay Stock Exchange on Monday to close at Rs179 even as the bellwether index Sensex ended the day 1.6% higher. The company made the announcement after market hours.
“RCom and Infratel are at an advanced stage of discussions with several domestic and international, strategic and financial players to finalise the proposal and it is anticipated that...a transaction would be announced shortly,” RCom said in its statement.
Infratel owns and operates 54,000 towers across the country, with RCom as the anchor tenant. A back-of-the-envelope calculation values the towers at around Rs25,000 crore.
RCom said the cash infusion would lead to substantial reduction of consolidated debt and improved leverage ratios for RCom, while the equity participation would enable future participation in growth projects.
The proposal would lead to consolidation in the tower infrastructure business, resulting in scale benefits and operational synergies, it said.
“I am delighted that this endeavour will greatly benefit Reliance Communications through substantial debt reduction, and enhanced financial flexibility,” said Anil Ambani, chairman of RCom.
“I am personally looking forward to an era of healthy co-operation and collaboration with existing and new players, especially recent winners of 3G and BWA (broadband wireless access) spectrum.”
Reliance Industries Ltd (RIL), controlled by Anil Ambani’s older brother Mukesh Ambani, on Friday announced that it would acquire a 95% stake in Infotel Broadband Services Pvt. Ltd, which won a licence to roll out broadband wireless services in 22 telecom circles across India.
An R-Adag spokesperson then said that “we look forward to offering our services to RIL and other BWA players, even while we compete for customers in the market place...”
RCom said the independence and neutrality of Infratel would help attract new 2G, 3G and BWA players as customers.
An industry expert who is familiar with the situation said RCom could be in talks with firms such as GTL Infrastructure Ltd and American Tower Corp. (ATC).
“It might be a combination of GTL and ATC since GTL alone would not have the necessary cash to invest in Infratel. Another possibility is that RCom strikes a deal with Mukesh Ambani’s Reliance Industries,” added the person, who did not want to be identified. An RCom spokesperson declined comment on the identity of a potential buyer.
“This exercise is obviously aimed at getting better valuation for RCom through deleveraging its books, but that will depend on who the strategic investor is going to be,” said a
Mumbai-based analyst with a foreign brokerage who did not want to be named as he is not authorized to speak to the media. “The investor will have to be somebody with longer than two-three year view of RCom.”
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