Canadian investment firm Brookfield Asset Management Inc. will invest Rs 25,215 crore ($3.66 billion) in Reliance Industries Ltd’s telecom tower assets in the single-biggest private equity deal ever in India.
The deal trumps the $2.4 billion (Rs 15,300 crore) investment by SoftBank Vision Fund in Indian online retailer Flipkart in 2017 and Brookfield’s own $1.9 billion transaction as part of a consortium to acquire a gas pipeline from companies controlled by RIL’s billionaire chairman Mukesh Ambani.
RIL said in a stock-exchange filing on Friday that Brookfield and its co-investors will put the money in the units to be issued by a Tower Infrastructure Trust, an infrastructure investment trust (InvIT).
The trust, which is sponsored by RIL’s wholly owned unit Reliance Industrial Investments and Holdings Ltd, holds a 51% stake in telecom tower operator Reliance Jio lnfratel Pvt. Ltd. RIL itself owns 49% of Reliance Jio lnfratel. The tower business was previously held under RIL’s telecom services arm, Reliance Jio lnfocomm Ltd. The business was transferred to Reliance Jio lnfratel by the end of March.
RIL said the proceeds from Brookfield’s investment will be used to repay certain existing financial liabilities of Reliance Jio lnfratel and to acquire its 49% stake in the tower company.
RIL’s outstanding debt as on June 30 was Rs 2,88,243 crore ($41.8 billion). According to analyst reports, Reliance Jio Infocomm had transferred tower and fibre assets worth Rs 1.25 trillion to two special purpose vehicles that are majority owned by InvITs. This helped it trim its net debt by Rs 60,000 crore.
“This is a significant step forward in optimizing the capital structure of the digital and infrastructure businesses. The transaction validates the value unlocked through spin-off of passive infrastructure assets of Jio through the InvIT structure,” RIL said in a press release.
Reporting its first-quarter earnings on Friday, RIL said that its Reliance Jio Infocomm unit reported a net profit of Rs 891 crore for the April-June period on revenue of Rs 11,679 crore. Reliance Jio reported a subscriber base of 331.3 million at the end of June 30, overtaking Bharti Airtel Ltd as India’s second-largest mobile-phone operator by number of users.
Brookfield's investment is subject to conditions precedent, including receipt of requisite government and regulatory approvals, RIL said.
Brookfield’s India play
The Canadian firm had been looking to establish a foothold in India’s telecom tower segment for the past few years. In October 2016, it had signed a pact to buy a majority stake in the tower assets of Reliance Communications Ltd, run by Mukesh’s younger brother Anil, for Rs 11,000 crore ($1.65 billion). That deal fell through the following year. RCom is now undergoing bankruptcy proceedings.
In December 2017, Reliance Jio Infocomm had agreed to buy RCom’s all wireless assets, including towers. However, the deal was called off earlier this year due to a lack of approvals from lenders and government authorities.
Brookfield owns and operates one of the largest infrastructure portfolios in the world, with about $65 billion of assets (including wind, hydro and solar assets) under management, its website shows.
In India, Brookfield has made some other significant infrastructure bets, too. These include a $300 million transaction in 2017 in the largest private equity buyout deal in the roads sector.
In the hospitality sector, Brookfield signed a pact earlier this year to acquire four Leela Hotels for $576 million. This deal is yet to pass regulatory muster and has been challenged by ITC Ltd and Life Insurance Corp, the hotel company’s minority shareholders.