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KKR, CPPIB buy 10.3% stake in Bharti Infratel for $952 mn

28 March, 2017

Bharti Airtel Ltd said on Tuesday it has sold a 10.3% stake in its tower arm to private equity firms Kohlberg Kravis & Roberts (KKR) and Canada Pension Plan Investment Board (CPPIB) for Rs 6,193 crore ($951.6 million).

Bharti Airtel will use the proceeds to pare debt, India’s largest telecom operator said in a statement. Its stake in the tower unit will fall to 61.7% after the transaction.

The company had net debt of Rs 97,395 crore at the end of December 2016, up from Rs 83,888 crore at the end of March 2016. It reported revenue of Rs 60,300 crore for 2015-16.

The deal was sealed at Rs 325 per share. That’s 4% higher than Bharti Infratel’s closing share price on Monday. Its shares rose 1.8% to Rs 318.25 in morning trade on Tuesday in a firm Mumbai market, giving it a market value of Rs 58,836 crore.

Bharti Infratel has about 90,000 telecom towers and reported revenue of Rs 5,595 crore for the financial year that ended in March 2016.

This is the second time KKR is investing in the tower company; it was previously invested in Bharti Infratel between 2008 and 2015.

Sanjay Nayar, member and CEO of KKR India, said that the PE firm will again work with the management of Bharti Infratel for the second phase of its growth.

The deal comes after Bharti Airte told stock exchanges earlier in the month that it had scrapped its plan to sell a controlling stake in the tower arm.

“This investment… reinforces the positive outlook for the telecom infrastructure sector. The long-term investment horizon of the investors aligns well with the capital needs and business cycles of Bharti Infratel,” said Sunil Bharti Mittal, Bharti Airtel’s chairman.

Deborah Orida, managing director and head of private equity for Asia at CPPIB, said this investment is aligned with CPPIB’s strategy to invest long-term capital in industry-leading companies as well as provide an opportunity to invest in a business with steady cash flows.

For Bharti Airtel, its strategy to monetise its tower arm comes less than a week after it announced its plan to acquire the 4G business of Tikona Digital Network for Rs 1,600 crore. The telecom major also announced the acquisition of Telenor India last month for an estimated price of around Rs 2,000 crore and signed a spectrum trading deal with Aircel last year to expand its 4G services.

Infratel’s previous call with investors
KKR initially invested about $250 million in Bharti Infratel, in December 2007, through a mixture of equity shares and convertible debentures along with the PE arm of Goldman Sachs and Singapore sovereign wealth fund Temasek.

The PE firm exited the investment in two tranches in 2015. It generated 70% returns in rupee and 10% returns in dollar terms over the seven-year period, as per VCCircle estimates.
However, KKR fared much better when compared with the other funds.

Temasek partially exited Bharti Infratel when the firm went public in 2012 and fully exited last year. It took a hair cut on its investment in dollar terms, although it made a modest return in rupee terms.

The PE arm of Goldman Sachs partially exited Bharti Infratel three years ago at a 40% loss in dollar terms.

Other tower deals
The deal is the latest in the telecom tower infrastructure segment in India.

Earlier this month, Idea Cellular Ltd and Vodafone India Ltd indicated they would sell shares in Indus Towers as part of a merger deal between the two companies.

Vodafone holds a 42% stake in Indus, Idea owns 11.2% stake and Bharti Airtel controlls the remaining.
In December 2016, Reliance Communications had agreed to sell a majority stake in its tower business to Canada’s Brookfield for $1.6 billion. NYSE-listed American Tower Corporation had bought a 51% stake in telecom tower firm Viom Networks Ltd for Rs 7,635 crore in 2015.

Both Brookfield and ATC were eyeing other tower businesses and had considered buying a majority stake in Bharti Infratel, media reports said. Several PE firms are also looking at acquiring Tower Vision India Pvt Ltd.

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KKR, CPPIB buy 10.3% stake in Bharti Infratel for $952 mn

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