A consortium led by US buyout fund KKR and comprising Canada Pension Plan Investment Board, Abu Dhabi Investment Authority and GIC Singapore is in discussions to acquire Indus Towers, the world’s largest wireless infrastructure company , and telecom tower company Bharti Infratel for $11billion, multiple people in the know told ET.
Once completed, this will arguably be the largest such transaction globally.
As the first step, Bharti Infratel will buy out either all or almost the entire 58% shareholding of other partners -Vodafone, Idea Cellular and Providence Equity Partners -in Indus Towers.Bharti Infratel currently owns 42% in Indus Towers, which has a portfolio of 1,23,000 towers.
Vodafone is likely to retain 810% stake to enjoy any future upside. Infratel has the right of first refusal on Vodafone and Idea’s stakes in Indus Towers.
“Bharti Infratel is likely to buy 45-50% stake for $5.5-6.5 billion as a leveraged buyout that will largely be funded out of the reserves and cash flow of Indus Towers,“ said one of the sources mentioned above. Investment banking sources put the enterprise value of privately held Indus at around $11billion, inclusive of $1-billion debt.
Spokespersons for Bharti, Voda fone Plc, KKR, Aditya Birla Group, CPPIB and ADIA declined to comment. GIC had not responded to ET’s questionnaire till press time.
The KKR-led consortium faces competition from Canada’s Brookfield, which is also aggressively pursuing the asset after its tower deal with Reliance Communications suffered a setback. Once Bharti Infratel consolidates Indus Towers, the KKR-led consortium will increase its economic interest in the company from the current 10% to become the single largest shareholder. Sources said the consortium may end up owning 4045% stake, though the final shareholding will depend on the success of an open offer.
Indian takeover code stipulates that an acquirer needs to buy an additional 26% equity from the open market once it controls 25% or more in a listed entity.
Management control will rest with the new financial partners.
As per the latest shareholding figures, Bharti Airtel controls 61.65% in Bharti Infratel while KKR-CPPIB owns 10.33% after its $954-million investment made in March this year. The remaining stake is held by public shareholders. Eventually , Bharti Airtel is likely to exit its residual stake to deleverage its balance sheet, which had net debt of ` . 87,840 crore ($13.5 billion) as of March 31, 2017.
The current market cap of Bharti Infratel is ` . 74,021 crore.
The discussions, which have been on for 15 months, gathered momentum in the past few weeks, said the person quoted earlier. If all goes well, the deal is expected to be signed by the end of this month or early next month.
Vodafone, according to a source, is negotiating on behalf of the combined 58% block in Indus Towers representing itself as well as Idea and Providence.
“The broad deal is almost in place. However, both the sellers -Vodafone (representing the 58% block) and Bharti Airtel -are yet to reach a closure date,“ said the person quoted above. In all likelihood, the deal is expected to close within four to six weeks, he added.
Separate rounds of meetings between the key stakeholders have been taking place in London, New York and New Delhi to finalise the valuation and the deal structure, according to another official directly involved. Bharti Group chairman Sunil Mittal has been spearheading the discussions with Vodafone group CEO Vittorio Colao as well as the KKR brass led by cofounder Henry Kravis and India CEO Sanjay Nayar.
The consortium is already in discussions with global banks for offshore and onshore financing to fund both legs of the transaction. It is also expected to informally approach various regulators -the Competition Commission of India, Securities and Exchange Board of India and Telecom Regulatory Authority of India, among others.
KKR has appointed BS Shantharaju, former CEO of Indus Towers, as an adviser to stitch up the deal.
However, analysts said a spurt in the Bharti Infratel stock could prove to be a hurdle. “The negotiated price is likely to be lower than the current market price of . 400.20 per share,“ said one of ` the person quoted above.
In August, Bharti Airtel had sold 3.65% stake in Infratel for ` . 2,570 crore at about ` . 380 per share.
KKR has been trying to create a large independent tower company that will lease slots to competing operators without any conflict. Globally, very few mobile operators own infrastructure assets and independent players command a premium valuation.Bharti will also get to strengthen its own balance sheet to combat the Reliance Jio juggernaut.
Analysts said Bharti Infratel looks best-placed, given net cash position, as data growth requires capex-intensive fibre rollout.“With over 40% tower market share and ~50% tenancy market share (in 2015), we see Bharti Infratel as the best positioned in the group to gain from the potential growth in wireless data over the next several years,“ added Morgan Stanley analysts Parag Gupta and Amruta Pabalkar.
Consolidation in the telecom space has already seen Vodafone join forces with Idea. The two companies are also selling some of the standalone towers they own outside the Indus Towers combine.