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RCom May Sell Majority Stake in Tower Business

rcomReliance Communications, India’s fourth-largest telecom carrier, is looking to sell a majority stake in unit Reliance Infratel, the country’s No. 3 tower company, at a valuation of Rs 20,000-25,000 crore in a bid to focus on core operations and pare debt.

The Anil Ambani-owned company, which wants to sell its entire stake in Reliance Infratel, may settle for a 51% sale at the least and has asked for bids from bankers including Morgan Stanley, Bank of America Merrill Lynch and JM Financial to run the process, people familiar with the matter said. Reliance Infratel, with some 45,000 towers and over 120,000 km of intra- and inter-circle fibre, trails Indus Towers and Bharti Infratel in rankings by number of towers.

Bharti Infratel, the only listed company in the space, has close to 86,000 towers and was valued at about Rs 74,000 crore as of March 5, as per data on the BSE.

“Taking Bharti Infratel’s valuation as a benchmark and putting in all performance and other parameters in place, Reliance Infratel’s enterprise value would be at least Rs 20,000-25,000 crore, especially given the fact that the company has the largest fibre network in place,” one of the people said.

RCom intends to select a banker in the next two weeks and complete the sale process in 2015, the person said. “In case of an outright sale, RCom will continue as a tenant in the company with new owners,” the person said.

Reliance Communications declined to comment.

Reliance Infratel is 96% owned by RCom. Minority and institutional investors such as George Soros’ Quantum (M), NSR Partners, Galleon, HSBC Daisy Investment ( Mauritius), Drawbridge Towers, Investment Partners B (Mauritius) – which invested $287 million in 2007 – own the remainder.

Another person familiar with the process said RCom wants to focus on its core telecom business, launch 4G LTE services, and monetise assets to reduce debt.

He added that a 51% stake sale will see RCom’s debt being reduced by at least Rs 15,000 crore, and potentially by about Rs 20,000 crore on exit. The company’s debt, after paying the Rs 1,100-crore upfront fee following the March spectrum auctions, stands at about Rs 37,000 crore.

IPO proposal 5 years back Reliance Infratel carries debt of about Rs 8,000-10,000 crore, which is now part of RCom’s books.

“The other deleveraging moves such as monetising real estate and sale of Global Cloud Xchange will continue, but given the condition of the market as well as the improved industry climate, the tower asset sale has been fast-tracked,” the person cited first said. Reliance Infratel sets up towers on which mobile phone companies install their base stations — equipment that emits microwave signals to mobile phones.

The move to monetise Reliance Infratel comes about five years after a proposal for an initial public offering fell through due to stock market conditions, turmoil in the telecom industry, ongoing litigation and the absence of a clear valuation mechanism. Also, at that time, the only tenant on the towers was RCom.

Things have changed since, with greater policy certainty and more pricing power, besides surging demand for data. Most leading telcos have announced investments to expand and roll out 3G and 4G networks, which would benefit tower providers. RCom towers also now have 45,000 external tenancies, 30,000 from Reliance Jio Infocomm and 15,000 from others such as Airtel, Vodafone and Idea Cellular.

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