October 24, 2017 / 3:39 AM / 5 months ago

BREAKINGVIEWS-Telecom stress can take Indian M&A to new heights

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

By Una Galani

MUMBAI, Oct 24 (Reuters Breakingviews) - Stress in telecoms could take deal-making in India to new heights. A consortium led by the U.S. private equity firm KKR, and including the Canada Pension Plan Investment Board (CPPIB), wants to merge two of the country’s top telecom tower companies, and then buy up to 45 percent of the enlarged entity, says the Economic Times.

Bharti Infratel and Indus Towers build, own, and operate telecom towers. The pair are already related companies and do not compete against each other. Publicly listed Infratel, controlled by top mobile operator Bharti Airtel, owns 42 percent of the privately owned Indus. The rest is mostly owned by rival operators Vodafone India and Idea Cellular, which recently agreed to merge.

The backers need the proceeds to pay down debt and invest amid a brutal price war led by new entrant Jio, backed by Mukesh Ambani, India’s richest man. Bharti Airtel already sold a roughly 10 percent stake in Infratel to KKR and CPPIB in March for 69.1 billion rupees ($953 million). The Economic Times says Infratel would first buy Indus using cash, and then the KKR-led consortium would make an open offer to buy more of the enlarged entity from public market shareholders.

Infratel has an enterprise value of just over $12 billion, and just over half its EBITDA comes from Indus. That implies a fully combined group could be worth about $20 billion before factoring in any synergies.

The buyers can ramp up returns with leverage. Infratel is sitting on net cash while global peers such as New York-listed American Tower carry net debt of almost five times EBITDA. The only catch might be fixing valuations for both transactions amid the rapid pace of consolidation among smaller telecoms operators and customers, which rent back the towers. In the short term, that’s bad for business.

If that hurdle is overcome, this would rank among the biggest deals ever struck in India. The record in private equity is SoftBank’s $2.5 billion investment in Flipkart, according to Venture Intelligence. The largest deal full stop is the $13 billion acquisition of Essar Oil by Rosneft and partners. But make no mistake, the telcos are calling from a position of weakness - not strength.

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- A consortium led by KKR is in talks to consolidate Indian telecoms towers companies Bharti Infratel and Indus Towers, the Economic Times reported on Oct. 11, citing people aware of the matter.

- The listed Infratel will first buy out the 58 percent of the unlisted Indus Towers that it does not already own. Then the KKR-led consortium will build a stake in the enlarged entity through an open offer, ending up with as much as 45 percent, the newspaper added.

- Infratel was 61.7 percent owned by Bharti Airtel and related entities as of June. Indus Towers is 42 percent owned by Bharti Infratel, 42 percent by Vodafone, and 11 percent by Idea Cellular. The balance is held by U.S. private equity firm Providence.

- For previous columns by the author, Reuters customers can click on


Editing by Quentin Webb and Katrina Hamlin

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