RCom signs binding agreement with Brookfield to sell tower assets

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Reliance Communications (RCom), the telecom services arm of the Anil Ambani-led Reliance Group, signed a binding agreement to sell a 51 percent stake in its telecom tower firm, Reliance Infratel, to global alternative assets management firm Brookfield Asset Management for Rs 11,000 crore.

On October 14, the Anil Ambani-led telco had first announced its understanding with Brookfield for the potential sale of its telecom tower assets.

RCom’s plan to sell its telecom towers business and utilise the proceeds to reduce the debt on its books has been in the works for at least six years. But each time RCom came close to signing a deal with a potential buyer, there invariably came a slip between the cup and the lip.

The potential suitors who were reported to be in the running to acquire these assets were Manoj Tirodkar-led GTL Infrastructure, and private equity firms Blackstone and Carlyle. Though the intention of hiving off RCom’s tower assets and combining them with GTL’s own was even announced in June 2010, the deal subsequently fell through.

The Brookfield deal is a case of third time lucky for RCom as the company said in a statement on Tuesday that it had agreed to transfer Reliance Infratel’s towers to a separate special purpose vehicle (SPV) that will be owned by Brookfield. Ambit, SBI Capital Markets and UBS Securities India acted as financial advisors on the deal.

RCom will continue to hold a 49 percent economic interest in the telecom towers business (without any voting rights) The company expects the value of this stake to rise in tandem with accelerated data consumption (spurred by telcos rolling out 4G services) and resultant increased tenancy on telecom towers. At a suitable time, RCom will look to monetize the balance portion of its stake and pare debt further, the company said.
 
Based on the agreement, RCom’s telecom tower assets are valued at Rs 21,568 crore, considerably less than the valuation of Rs 30,000 crore that it originally expected in 2010.

Still, the cash that it will receive will be vital oxygen for RCom as it is desperately seeking to reduce its leverage. As of June 30, 2016, RCom had a net debt of Rs 42,071 crore.

On September 14, RCom announced another deal to hive off its wireless services business in India and merge it with Aircel’s wireless operations in a new entity, which would be equally owned by the two companies. As part of the deal with Aircel, RCom was going to transfer a significant portion of the debt on its books into the new company. This transaction, along with Friday’s announcement pertaining to the telecom towers business, will help RCom reduce its debt to Rs 17,000 crore. The telco wants to reduce its level of borrowings by another Rs 5,000 by monetising a portion of the real estate it owns.

Also, post the merger of Sistema Shyam Teleservices’ wireless business with its own, the subsequent integration with Aircel’s business and an agreement with Mukesh Ambani-led Reliance Jio to share spectrum and other infrastructure, RCom may not need to incur heavy capital expenditure for quite some time.