Reliance ADA Group has started negotiations to raise as much as Rs 2,500 crore ($ 540 million) by selling up to 5% stake of its telecom tower business Reliance Infratel to strategic or financial investors in a pre-IPO deal. Reliance Infratel, a subsidiary of Reliance Communications, has already received the market regulator's nod for its proposed IPO.

According to this report, it is looking to sell a 3-5% stake and is hoping to rake in Rs 1,500-2,500 crore, valuing the firm around Rs 50,000 crore ($10.9 billion). This would be in addition to around 10% equity dilution through the IPO which is expected to raise around Rs 5,000 crore.

The telecom firm could be benchmarking against the latest deal in the space where GTL acquired Aircel’s tower business. GTL has announced that it will pay Rs 48 lakh per tower for the 17,500 towers owned by Aircel.

Given the number of towers owned by it (50,000), Reliance Infratel would be valued at around Rs 24,000 crore. But Reliance Infratel is looking to leverage on its relatively better tenancy ratio (the number of telecom operators sharing a particular tower) compared to GTL Infra which could command a higher valuation. The tenancy ratio for Reliance Infratel is almost two times that of GTL and the firm is aiming to push it even higher as new telecom firms come into play.

This could also be in line with some research reports such as that by Bank of America Merrill Lynch that gave Reliance Infratel a rough enterprise value of $13-14 billion, just around four months ago.

Interestingly, the decline in value of a single tower over the last two years has been made up by the expansion in actual towers which has scaled up total valuation by over 60%. In its first round of placement in July 2007, Reliance Infratel raised Rs 1,400 crore by selling a 5% stake to seven investors - George Soros, HSBC, Fortress Capital, New Silk, Galleon, DA Capital and GLG Capital. The deal valued the firm at Rs 28,000 crore back then with each tower valued at Rs 95 lakh.

Reliance Infratel had revenues of Rs 4,934 crore in FY09 with 48,000 towers and 75,000 tenants, said Anil Ambani, the head of Anil Dhirubhai Ambani Group (ADAG), at the last AGM of Reliance Communication.

The passive telecom infrastructure space has been consolidating over the last two years. Among the recent transactions: Quippo Telecom Infrastructure (QTIL) merged with Wireless-TT Info-Services Limited (WTTIL), the tower arm of Tata Teleservices Limited, to form the largest independent player in this space. In another deal American Tower Corporation acquired Xcel Telecom.


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