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ATC to acquire tower businesses of Idea, Vodafone for $1.2 bn

13 November, 2017

Idea Cellular Ltd and Vodafone Group Plc’s Indian unit have agreed to sell their standalone tower assets to American Tower Corp for Rs 7,850 crore ($1.2 billion), as the wave of consolidation continues in India’s telecom sector.

The twin deals come after Idea, part of the diversified Aditya Birla Group, and Vodafone decided in March to merge their mobile-phone businesses and shed their tower assets to create India’s biggest telecom services provider.

Idea will get Rs 4,000 crore for its tower business while Vodafone will get Rs 3,850 crore if the tower deal concludes before the merger of their mobile-phone businesses is completed, the companies said in a statement on Monday. The tower deals with ATC are likely to be completed by June 2018.

The transactions will help ATC strengthen its foothold in India’s telecom tower sector. The New York-listed company entered India a decade ago and has expanded rapidly through acquisitions. It acquired Xcel Telecom to add 1,657 towers in May 2009 and purchased 327 towers in eastern India from Transcend Infrastructure in November that year, according to its website. The following year, it bought 4,629 towers from Essar Telecom.

In 2015, ATC agreed to acquire a controlling stake in Viom Networks Ltd for $1.2 billion. ATC is buying towers from Idea and Vodafone through Viom, now known as ATC Telecom Infrastructure Pvt. Ltd.

Idea and Vodafone India have a total of about 20,000 towers, with 1.65 tenants each on average, as of 30 June 2017. Idea Cellular Infrastructure Services Ltd, a unit of Idea Cellular, had around 9,900 towers with a tenancy ratio of 1.80 as of 30 September 2017. Vodafone India had 10,230 towers and a tenancy ratio of 1.58.

The Idea unit reported earnings before tax, depreciation and amortisation of Rs 194 crore for the first half of 2017-18. Vodafone India’s tower business reported an EBITDA of Rs 369 crore for 2016-17.

ATC said the transactions are likely to generate about Rs 2,100 crore ($320 million) in property revenue and Rs 800 crore in gross margin during their first full year in its portfolio.

“We expect the addition of these two high quality portfolios to be highly complementary to our existing assets and to contribute to long-term leasing growth as India’s leading mobile operators accelerate their 4G network deployments,” said Jim Taiclet, ATC’s CEO.

Morgan Stanley was the financial adviser to Vodafone while DSP Merrill Lynch was the financial adviser to Idea Cellular.

Industry consolidation
India’s telecom industry has been in a consolidation mode since last year when billionaire Mukesh Ambani-led Reliance Jio Infocomm Ltd launched its operations with free voice services and rock-bottom data tariffs. While Idea and Vodafone are merging their mobile-phone businesses, market leader Bharti Airtel Ltd has snapped up several smaller operators.

The telecom tower segment is consolidating too, as foreign companies such as ATC and Canadian infrastructure investor Brookfield scout for assets from Indian firms struggling to survive after years of debt-fuelled expansion.

A person familiar with the latest transaction said that, in the aftermath of this deal, the industry is now consolidated into three large tower operators—ATC, Indus Towers and Bharti Infratel Ltd, apart from state-run Bharat Sanchar Nigam Ltd. Other players include Ascend Telecom, Tower Vision and Reliance Infratel Ltd.

Brookfield had agreed to buy Reliance Infratel, the tower arm of Reliance Communications Ltd, but the deal hit a snag earlier this month. Meanwhile, Tower Vision has separately attracted private equity interest. Ascend is backed by IDFC Alternatives.

Indus—the biggest tower company—is a three-way joint venture among Idea, Vodafone and Bharti Airtel, which also controls Bharti Infratel. Bharti and Vodafone each have a 42% stake in Indus while Idea owns 11.15%.

Idea and Vodafone have been exploring options to sell their stake in Indus. Earlier this month, Bharti Infratel said it was looking to buy an additional stake in Indus Towers.

Bharti Infratel, which was earlier touted as one of the potential buyers for Idea and Vodafone towers, recently brought on board private equity investors KKR and CPPIB.

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ATC to acquire tower businesses of Idea, Vodafone for $1.2 bn

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