Reliance Communications Ltd (RCOM) has signed a non-binding term sheet to sell majority stake in its tower assets housed under Reliance Infratel Ltd to Canada’s Brookfield Asset Management Inc for Rs 11,000 crore ($1.65 billion) to pare debt.
If the deal materialises it would be the second-biggest private equity transaction ever in the country, behind Temasek’s $2 billion investment in Bharti Telecom in 2007.
RCOM said on Friday the tower assets are going to be transferred to a special purpose vehicle (SPV), owned by Brookfield. The SPV will also look at acquisitions to consolidate the tower business in the country, the firm said.
It will receive an upfront cash payment of Rs 11,000 crore from the proposed transaction and will retain 49% future economic upside from the towers business, based on certain conditions. It did not share more details on the structure of the deal.
RCOM holds around 91% of Reliance Infratel while the remaining stake is held by George Soros' Quantum, New Silk Route and other investors.
RCOM will continue as an anchor tenant on the tower assets, under a long-term agreement, for its integrated telecommunications business.
The transaction is subject to documentation and approvals, it said.
Ambit and UBS advised RCOM in this transaction.
RCOM's tower business and valuation
It is now looking to be second time lucky as its previous non-binding term sheet for sale of the same assets did not fructify. Last December, RCOM entered into an initial agreement with private equity investors Tillman Global Holdings and TPG Asia to sell its tower assets and other related infrastructure across the country.
US-based investment firm Tillman Global, founded by telecom veteran and former CEO of Orange SA Sanjiv Ahuja, and TPG Asia were also looking to acquire RCOM's nationwide inter-city optic fibre assets, in a separate and independent transaction.
At that time, the specified assets were to be transferred from Reliance Infratel to a separate SPV, which was to be completely owned by TPG and Tillman.
However, TPG walked away from the deal after RCCOM declined to accept the valuation of Rs 13,000 crore to Rs 15,000 crore for the tower business. RCOM was seeking a valuation of Rs 21,500 for the assets, The Economic Times had reported earlier.
If the indicative deal structure is anything to go by, it has managed a valuation around that level with Brookfield.
RCOM has been trying to sell its tower business to reduce debt. It had invited proposal from investments banks to monetise assets of its tower unit in May 2015.
At that time, the telecom operator owned around 45,200 towers with 120,000 kms of intra- and inter-city fiber laid out. Reliance Infratel is the country's third-largest tower company behind Bharti Infratel and Indus Towers.
A year ago, in another large tower deal, NYSE-listed American Tower Corporation (ATC) bought 51% stake in telecom tower firm Viom Networks Ltd for Rs 7,635 crore ($1.2 billion) in cash. Viom, co-promoted by Tata Group's privately held communications arm Tata Teleservices Ltd and the Kanoria family of SREI Infrastructure Finance Ltd, counted several private investors, many of whom had backed the Kanorias in their tower firm Quippo Telecom Infrastructure.
Viom was created as part of a merger between Quippo and Tata Teleservices' tower unit in 2009.
It owned and operated about 42,200 wireless communications towers and 200 indoor distributed antenna systems across India at the time of the transaction. The deal pegs the firm's enterprise value at Rs 20,770 crore, or 11 times its annualised EBITDA and Rs 49 lakh per tower.
RCOM seems to have managed a similar benchmark in terms of value per tower in the deal with Brookfield.
Meanwhile, for RCOM this would mark a back-to-back transaction to chop off debt. Last month, RCOM announced a merger with Aircel to create a Rs 65,000 crore entity, in a transaction that would reduced its debt by Rs 20,000 crore.
Brookfield’s India play
For Brookfield, a deal with Reliance Infratel will be another attempt to increase its Indian footprint. The Canadian alternative asset manager had acquired some road assets from Gammon Infrastructure Projects Ltd in August last year and bought a majority stake in a string of industrial parks in Delhi-NCR from Unitech in 2014 in large-sized transactions.
In July, Brookfield tied up with State Bank of India to invest as much as Rs 7,000 crore ($1.04 billion) in stressed assets.
Last week, it sealed another large transaction in the real estate space to buy an asset from Hiranandani Group for around $1 billion, the single-biggest realty deal in the country to date.
Like this report? Sign up for our daily newsletter to get our top reports.