Published: Thu, April 26, 2018
Research | By Raquel Erickson

Bharti Infratel, Indus Towers to Merge Operations in India

Bharti Infratel, Indus Towers to Merge Operations in India

After the merger of Bharti Infratel Ltd, the tower arm of Bharti Airtel, and Indus Towers, the combined entity will own more than 163,000 towers and will create the world's largest tower company outside China. Bharti Airtel said it will engage with potential investors to evaluate a strategic stake sale in the new tower company. KKR and CPPIB past year bought a combined stake of 10 per cent in Bharti Infratel.

Vodafone has 42 per cent stake in Indus Tower. Providence has the option to encash or get shares aggregating 3.35% against its current 4.85% holding in Indus. In terms of valuation, the deal values Indus at Rs715 billion at a deal price of Rs 363 per share for Bharti Infratel indicating implied EV/ LTM EBITDA (EV: Enterprise Value; LTM: Last twelve month; EBITDA: Earnings before interest, tax, depreciation and amortization) valuation of 9.3 times.

Top Indian telecom carrier Bharti Airtel, the majority owner of Bharti Infratel, will be the biggest shareholder in the combined company followed by Vodafone Group. Similarly, Airtel's stake in new combined tower behemoth may be diluted to 37.2 per cent in combined entity from 53.5 per cent it now holds on Bharti Infratel. After the Bharti Infratel and Indus Tower merger, there will be only three major players (and a smaller one, BSNL).

Bharti Infratel and Vodafone now own 42 per cent each in Indus Towers while Idea Cellular group owns 11.15 per cent and US-based private equity firm Providence owns the remaining 4.85 per cent.

Vodafone and Idea had flagged they would look at selling their stakes in Indus and other tower assets they separately own to help cut debt for the merged telecom carrier.

In the tower industry, at present, ATC owns or operates over 68,000 tower sites in India with final approval pending to acquire another 10,000 standalone towers from Idea Cellular.


Idea has an option to sell its 11.2 percent stake in Indus for about $1 billion or receive new shares in the combined masts company. Indus' 2 other main shareholders, Idea Cellular and Providence Equity Partners, will have an option to cash out.

Subject to regulatory approvals, the deal is expected to go through prior to the end of the fiscal year ending 31 March 2019.

"Bharti Airtel and Vodafone will have equal rights in the combined company", the statement said. "The combination of Bharti Infratel and Indus Towers, with their highly complementary footprints, will create a pan-India tower company with the ability to offer high-quality passive infrastructure services to all operators on a non-discriminatory basis, needed to support the pan-India expansion of wireless broadband services using 4G/4G+/5G technologies", it added.

Bharti Airtel, Vodafone and Idea - the Indian market's three biggest phone carriers - got together in 2007 to form Indus Towers to lower costs as they focus on their core mobile services business. Earlier, Bharti Infratel and Indus Towers were operating in 7 and 15 circles respectively. "On the basis that Idea Group and Providence elect to receive the maximum possible cash consideration, the pro forma net debt of the combined company would have been Rs 5,600 crore (USD 0.8 billion) as at March 31, 2018", it said.

It is the latest in a flurry of deals between Indian telecoms operators as they combine to cope with a price war being waged by Mukesh Ambani.

"We see both Bharti and Vodafone bringing down their (respective) shareholdings meaningfully, but not down to zero, post-closure of the Indus-Infratel merger, and would expect them to (jointly) hold 25-30% at least", Sharma said in a note, a copy of which was reviewed by ET.

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