With Brookfield Asset Management emerging as one of the key contenders to acquire the independent tower assets of Idea Cellular Ltd and Vodafone India Ltd, the Canadian alternative asset manager— which also signed a deal in December to acquire the towers of Reliance Communications Ltd is looking to control up to 20 per cent of the market in India.
However, Brookfield is not the only large global fund looking to aggregate telecom tower assets in the country.
In March, global private equity giant KKR and Canadian pension fund CPPIB picked up a 10.3 per cent stake in Bharti Infratel Ltd, the telecom tower arm of Bharti Airtel Ltd. Though relatively small, the deal is likely part of a broader arrangement under which both KKR and CPPIB are expected to buy Idea Cellular’s stake in Indus Towers Ltd, India’s largest telecom tower company with close to 40 per cent market share, as Mint reported in March.
Again, in April, home-grown infrastructure investor IDFC Alternatives bought a 33 per cent stake in New Silk Route (NSR)-backed telecom tower firm Ascend Telecom Infrastructure Pvt. Ltd for around Rs585 crore. Significantly, the transaction also saw a consortium of 23 banks selling their loans to IDFC Bank. The PE fund plans to acquire more tower assets as part of its strategy to aggregate tower assets.
“In Europe and US, infra projects are being underwritten in the range of 3 per cent project IRR (internal rate of return), whereas in India, banks are lending senior secured debt at around 9 per cent,” said M.K. Sinha, chief executive and managing director of IDFC Alternatives, pointing to the cost arbitrage that most large global firms have in India. “There is no dearth of capital for right assets,” he said.
Yet, while above-average risk-adjusted return expectations seem to be driving yield-seeking long-term funds towards such annuity cash flow generating assets, that may not be the only reason.
“The growing consolidation in the telecom service space had impacted the tenancy ratios of several tower companies; as a result, many of them are in high debt,” said Mahesh Uppal, founder of ComFirst consultancy. “For large funds looking to acquire tower assets, this may be a good time as many operators are looking to sell tower assets to optimise costs and cut debt,” Uppal adds. “The tower industry is moving towards a situation where those with access to a huge amount of capital will expand and gain market share in the years to come,” Uppal added.
While high expenditures such as fuel and labour, besides unpaid dues from operators in the last few years have resulted in rising debt and low operating cash for tower companies, the situation could be changing now. “This (is) a company which is now throwing up Rs230 crore of Ebitda although it did get into trouble in the past, but is well out of it now,” said Sinha, referring to Ascend Telecom’s corporate debt restructuring in 2014.
In another sign of growing optimism, GTL Infrastructure Ltd, which is currently under strategic debt restructuring (SDR), is seeking a valuation upwards of Rs 11,000 crore, which is around 11 times its current Ebitda, Mint reported. The company which owns around 28,000 towers reported a combined revenue of Rs2,286.05 crore against Rs2,145.51 crore in the previous year. For 2016-17, the company has also increased its total tenancy to 50,845 from 40,261 in 2015-16.
According to GTL Infra officials, the company’s stake sale process, which began in April is benchmarked around the valuation of recent deals in the telecom space as well as the improved tower tenancy ratios after several years of revenue and tenancy decline because of cancellation of telecom licences and intermittent freezes on capital expenditure by telecom operators. “We believe that REITs (real estate investment trusts), strategic tower players and other global investors could be interested in our tower assets, a spokesperson of the company had told Mint in May. The company subsequently appointed TAP Advisors, a New York-based specialised investment banking firm to scout for buyers globally.
This article was first published on LiveMint.com.