‘Viom Acquisition Shows Our Commitment to the Country’
We are glad we didn’t pay what others were paying for tower assets before
American Tower Corp will effectively own 65% in a combined entity post-merger of ATC India and Viom, ATC chairman told Deepali Gupta on a day the Cabinet approved the deal. The Tatas will own 26%, though the US-based company is willing to buy the remaining stake when its partners wish to exit. Taiclet said ATC is recruiting an overseeing management team to integrate Viom — the largest inbound acquisition so far this fiscal year. Edited excerpts.
ON NEW STRUCTURE Once we close transaction, we will have 51% of Viom and 100% of ATC India. The two legal entities will be separate. We are crafting a joint team between the two to be the operating manager of all those assets
After all the to and fro, what tipped your decision in favour of Viom deal? We adjust the return on investment in any country based on its risk profile. We also correlate it with US treasury bonds and country debt rate. The Viom acquisition shows our commitment to the market and the country. What this does to us is really give us a scale where we can well exceed our risk adjusted return. Also, having a prestigious position in India gives us access to assets overlapping in other geographies, such as in Europe, there’s Vodafone. Our ultimate goal is to be a leading global independent infrastructure operator.
You have more towers in India than even the US. With lower income per tower, how do you justify capital investment? In India, cost of building a tower comes to about $40,000 (each). It used to be $50,000 but height requirements have changed. Average cost of setting up a tower in the US is $300,000 and so returns per tower are in line.
Are you glad you didn’t close a deal in 2010-12 when other higher-priced deals like Aircel and GTL took place? We are glad we didn’t pay what others were paying for tower assets before that (2012 licence cancellations). We did a series of acquisitions when we entered, the biggest of which was Essar’s towers. Yet, we missed out at all of the big operator asset plays, Aircel, Reliance (Communications). We were involved in early rounds but they did not match our risk adjusted return pricing.
With more such opportunities available, is there chance of another acquisition here? Given the magnitude of this acquisition, it will take us a year or two to get business and legal entities integrated. We are not necessarily done in India but it will take us two years to define it. What will be the final ATC structure after the merger? Once we close transaction, we will have 51% of Viom and 100% of ATC India. The two legal entities will be separate. We are crafting a joint team between the two to be the operating manager of all those assets. In year I of the integration plan, there will be a merger of the two legal entities outside of day-to-day operations. Once that is complete, our ownership will go to 65%, Tatas’ will be 26% and the rest will be with IDFC and Macquarie.
What are exit options for Macquarie, IDFC and Tatas? Is an IPO on the cards? Tatas made it quite clear at the start that they were interested to stay involved in this endeavour. We are not interested in listing. At some time we may become (interested) but there is nothing now. Both (Tata and minority shareholders) can sell to us. Their primary exit option will be us. They will let us make an offer and then they can look to see if they can do better. Thereafter they can sell to anyone.
In the US, ATC has REIT status. Will you try for it in India too? REIT status is a tax selection not a company strategy. At some point in the future, our strategy is to scale up dramatically, mergers or not, consolidate that, create sales on that. Once we have that, we will determine what tax strategy to adopt. We will consider it (converting the Indian entity into a REIT) as part of strategy, but that is not a governing aspect.
Is there a plan to deleverage Viom or combined Indian ATC? We will integrate ATC, Viom debt in our entire capital structure. The overall target is to take debt to three to five times the EBITDA for the entire company. India’s debt position fits in that and we won’t have to slice debt in India because it is part of the global piece.
It will be a function of cost of debt in absolute terms and how much. In India, it is at 1112%, compared with high single digits in the US and around 18% in Africa. We will also see if banking with ATC can help refinance this debt to a lower cost.
Will you look to refinance from Indian lenders or international borrowings? We will be targeting local debt as we will want local currency exposure. It is one of the many natural hedges to currency changes.