In what is seen to be India’s biggest domestic deal, the Anil Ambani-led Reliance Communications (RCom) separated the tower business of Reliance Infratel — its 95 per cent subsidiary — and merged it with Manoj Tirodkar’s GTL Infrastructure for $11 billion (Rs 50,000 crore) on Sunday.
“The boards of RCom, Reliance Infratel and GTL Infrastructure today in-principle approved a Rs 50,000 crore deal,” an RCom statement said.
The deal has three components. First, GTL will pay a part of the deal — around Rs 6,750 crore — in cash. “GTL plans to raise funds for this through private equity deal,” a source said.
Second, GTL will absorb a part of RCom’s debt, around Rs 11,250 crore, paid by GTL over its tenure. Third, RCom shareholders will get free equity in the merged entity. This figure is likely to be between two and three GTL shares for every RCom share held.
“The proposal will lead to substantial unlocking of value through cash infusion to RCom, leading to substantial reduction of its consolidated gross debt and improved leverage ratios,” RCom said.
“The merged entity will have 80,000 towers and 125,000 tenancies from 10 telecom operators,” a GTL statement said. “It will also have a firm option on an additional 75,000 tenancies from leading players.”
How will GTL, with a market capitalisation of Rs 4,000 crore, fund a Rs 50,000-crore deal?
“The company can raise the funds at the merger or after the merger,” the source said. “Standard Chartered and SBI Capital Markets are looking at raising the funds for which there is a lot of appetite in the market. There are potential equity investors looking to invest in the independent tower company.”
The merger, expected to be done over the next six months, could reduce RCom’s Rs 33,000 crore debt substantially, catalysing it to move towards zero-debt status. It will also help GTL take its total tower count from 32,000 to 82,000, making it the world’s largest. “This is in line with the company’s plans of taking its tower business to 1 lakh by 2012,” the source said.