Reliance and GTL to merge tower operations

Reliance Communications, India's second biggest cellphone operator, has agreed to merge its telecom communication towers business with that of GTL Infrastructure to create what it said would be the world's largest telecoms infrastructure firm not controlled by an operator.

Financial terms of the deal were not disclosed, but the combined operations would have an enterprise value of more than $11 billion (Dh40.37bn) and would own more than 80,000 towers, with more than 125,000 tenancies from more than 10 operators, Reliance Communications said.

Debt-laden Reliance Communications, controlled by billionaire Anil Ambani, earlier this month announced a plan to create an independent tower unit. It had previously planned to spin-off its 95 per cent-owned telecom infrastructure arm, Reliance Infratel, through an initial public offering.

Under the terms of yesterday's deal, GTL Infrastructure Chairman Manoj Tirodkar would own 30 to 35 per cent of the combined tower business and Ambani's Reliance ADA Group would own 26 per cent, with shareholders in the two firms holding the remainder, sources with direct knowledge of the matter said.

GTL Infrastructure, which has a market value of $934 million, in January agreed to buy Indian mobile firm Aircel's telecom towers for $1.8bn, which gave it a total of 32,500 towers.

India's 15-player cellular industry is fiercely competitive, with carriers engaged in a margin-crushing tariff war and burdened with the expense of third-generation (3G) licences that cost far more than expected in a recent government auction.

India is the world's fastest-growing cellular market and with 600 million users is the second largest, after China.

"There is a shake-up waiting to happen in the telecoms industry in the next eight to 10 months. When that happens it is very important for Reliance Communications to have a strong balance sheet with low debt," said Jagannadham Thunuguntla, head of equity at SMC Capitals.

"Otherwise they may become a takeover candidate. But if you have a relatively light balance sheet and relatively low leverage you can become an acquirer," he said.

Shares in Reliance Comm, which is also looking to sell as much as a 26 per cent stake in itself, have risen 33 per cent in June. GTL Infrastructure shares are up 24 per cent this month.

Under the GTL deal, Reliance Comm said it would retain its optic fibre network and related assets and would receive cash as part of the deal as well as Reliance Comm shareholders getting shares in GTL Infrastructure.

One of the sources said the deal would result in a debt reduction of Rs180 billion rupees (Dh14.25bn) for Reliance Comm. Its debt before the deal stood at about Rs330bn, including the cost to finance its recent third-generation spectrum licences, the person said. Details on the cash infusion to Reliance Comm, and the share swap ratios will be finalised in due course, the statement said.

Carriers in India have been hiving off their tower operations in order to reduce their capital expenditure and debt burdens. Spinning off tower holdings into an independent firm is intended to make it easier to attract rival carriers as tenants. "In the tower business scale is very important and it makes sense for a serious player to consolidate with another player who has adequate resources. This being a capital-intensive sector, consolidation is the way to increase scale and tenancies," said Manesh Patel, partner, advisory services, at Ernst & Young.

The deal is expected to close within six months, Reliance Comm said.

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