Bharti In­fratel’s Stake-Sale Talks Hit a Val­u­a­tion Bump

Sharp drop in share price dents po­ten­tial deal value

The Economic Times - - Front Page -

Deepali Gupta & Sneha Shah

Mum­bai: Talks to sell a con­trol­ling stake in Bharti In­fratel to a con­sor­tium of KKR and CPP In­vest­ment Board seem to have hit a snag over val­u­a­tion, with the tele­com tower com­pany’s shares tak­ing a deep dive fol­low­ing news of a po­ten­tial Idea Cel­lu­lar-Voda­fone In­dia merger.

A 17% drop in the share price of Bharti In­fratel in just two trad­ing days last week eroded its mar­ket value by .₹ 11,400 crore, thus dent­ing the po­ten­tial deal value, ex­ec­u­tives in the know of the talks said.

Bharti In­fratel has com­mu­ni­cated to the pri­vate eq­uity firm and the Cana­dian pen­sion fund that the premium for ced­ing man­age­ment con­trol is sig­nif­i­cantly higher than the .₹ 340 a share of­fer they made, the ex­ec­u­tives said. The ne­go­ti­a­tions, though, are on­go­ing, they added.

The tower unit of Bharti Air­tel is look­ing to sell a 41% stake along with man­age­ment con­trol. Bharti Air­tel owns 71.96% of the com­pany while the rest is held by pub­lic share­hold­ers. The con­sor­tium sub­mit­ted its bid late last week.

On Mon­day, the com­pany’s shares closed at .₹ 304.60 on the Bom­bay Stock Ex­change, valu­ing it at over .₹ 56,000 crore ($8.3 bil­lion). The stock, which hit a year-high of .₹ 412.55 in July last, has re­cov­ered marginally after last week’s melt­down. Aspokesman for Bharti En­ter­prises, the group hold­ing com­pany, de­clined to com­ment on the talks. KKR and CPPIB didn’t re­spond to emails seek­ing com­ment. A merger be­tween Voda­fone In­dia and Idea is ex­pected to sig­nif­i­cantly af­fect de­mand for tower sites, as the sec­ond and third largest tele­com op­er­a­tors will seek to ra­tio­nalise the re­quire­ment of in­fra­struc­ture by avoid­ing over­laps as a com­bined en­tity. That, in turn, will hurt the long-term prof­itabil­ity of the com­pany. An­a­lysts at JM Fi­nan­cial In­sti­tu­tional Se­cu­ri­ties es­ti­mate the po­ten­tial dam­age to range be­tween .₹ 40 and .₹ 53 a share for Bharti In­fratel.

ment and Ap­pel­late Tri­bunal (TDSAT) has asked Tele­com Reg­u­la­tory Au­thor­ity of In­dia (Trai) to sub­mit clar­i­fi­ca­tions on Re­liance Jio In­fo­comm’s free voice and data ser­vices, in­clud­ing whether the com­pany had kept the watch­dog in the loop on its pro­mo­tional of­fers, re­ports This fol­lowed the Trai clear­ing Jio’s free ‘Happy New Year’ voice call­ing and data plan last week.

Co tells KKR and CPPIB the premium for ced­ing con­trol is much higher than the 340 a share of­fer they made

Bharti In­fratel de­rives around 85% of rev­enue from the top-3 op­er­a­tors, Bharti, Voda­fone and Idea. Re­lated-party trans­ac­tions data in­di­cate that it gets around 45.5% rev­enue from Bharti, which means about 39.5% of it comes from Voda­fone and Idea. The com­pany holds 42% of In­dus Tow­ers, In­dia’s largest tele­com tow­ers com­pany where Voda­fone and Idea are its joint ven­ture part­ners. To­gether with its share in In­dus, the com­pany has 90,000 tow­ers cov­er­ing all the 22 tele­com cir­cles the coun­try is di­vided into. Its stand­alone mar­ket share of in­stalled tower bases was 9.8% in the year-ended March 31, 2015, but to­gether with In­dus, it was the dom­i­nant player, hav­ing 40.8% of the mar­ket.

CON­SOL­I­DA­TION WORRY

Both In­fratel and In­dus are in- ter­linked, mak­ing both vul­ner­a­ble to any con­sol­i­da­tion among tele­com op­er­a­tors. The val­u­a­tion of In­dus flows through into the val­u­a­tion of In­fratel’s 42% stake in the com­pany. But, if the talks be­tween Voda­fone and Idea lead to a merger, In­fratel will be re­duced to a mi­nor­ity in­vestor in In­dus as a com­bined IdeaVoda­fone will own 58% in it. This risk, too, is weigh­ing on In­fratel’s val­u­a­tion.

Bharti is bas­ing its val­u­a­tion on the re­cent sale of Viom Net­works, an­other do­mes­tic tower as­sets provider. Last year, Amer­i­can Tower Corp paid a premium to buy an11% stake that was bun­dled with the man­age­ment con­trol of the com­pany. Re­liance Com­mu­ni­ca­tions signed an agree­ment to sell a 51% stake for ₹ 11,000 crore, but let go of all man­age­ment and vot­ing rights at that price.

In Oc­to­ber last year, Bharti Air­tel said it has taken board ap­proval to explore mon­eti­sa­tion of a sig­nif­i­cant stake in In­fratel. Com­bat­ing deep­pock­eted rival Re­liance Jio In­fo­comm, with ris­ing costs of mo­bile air­waves and star­ing price wars, makes cash a pre­cious com­mod­ity for Bharti, Voda­fone and Idea.

CON­TROL­LING STAKE

A per­son cited ear­lier said talks at In­fratel have al­ready con­sid­ered sev­eral per­mu­ta­tions, in­clud­ing sell­ing mi­nor­ity stakes spread across sev­eral in­vestors or a mi­nor­ity stake to a sin­gle con­sor­tium. But suit­ors like KKR-CPPIB are keen to make it an in­de­pen­dent tower com­pany so that they can re­draft ten­ancy agree­ments with op­er­a­tors.

“The deal sweet­ener was that In­dus Tow­ers could be ex­panded from 16 cir­cles to all In­dia by con­sol­i­dat­ing what (tower as­sets) Idea and Voda­fone also have. Nei­ther will give up tho- se as­sets un­less Bharti gives up man­age­ment,” he said.

“Con­sid­er­ing the large in­vest­ments re­quired, KKR and CPPIB, along with some of their mar­que LPs are look­ing at a con­sor­tium to ac­quire a con­trol­ling stake in the com­pany,” an­other per­son said. Brooke­field and Blackstone, too, had eval­u­ated the as­set be­fore drop­ping out.

With Bharti In­fratel’s cur­rent mar­ket cap­i­tal­i­sa­tion of $8.3 bil­lion, the 41% stake that is on sale is valued at $3.4 bil­lion, mak­ing a po­ten­tial deal the largest tele­com tower trans­ac­tion in the coun­try till date. It would also trig­ger an open of­fer for an ad­di­tional 26% stake in the com­pany.

On each of its tow­ers, at least two slots are leased out, mak­ing the com­pany’s shar­ing fac­tor 2.2 times. Its av­er­age monthly rental per slot leased is also on the higher end of the in­dus­try at ₹ 34,000.

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