Blackstone, Carlyle close in on Anil Ambani's tower biz

Sign term sheet to buy up to 95% stake Rs 15,000-20,000 cr valuation seen

After months of negotiations, Anil Ambani's plan to sell his tower business has reached the final lap. Private equity giants Blackstone and Carlyle Group have signed a term sheet to buy up to 95 per cent stake in Reliance Infratel. The term sheet was signed a few weeks ago.

Reliance Communications (RCom), which controls Infratel, owns nearly 50,000 towers across the country and the valuation of the deal has been pegged at Rs 15,000-20,000 crore, based on a mutually acceptable formula, sources in the know say. Based on this value, RCom will get Rs 31-41 lakh a tower, substantially less than the nearly Rs 1.2 crore a tower the company got by selling five per cent stake to sundry investors in 2007. RCom then had 23,000 towers and sold the five per cent stake at Rs 1,400 crore.

However, many experts say the current price is reasonable, considering the overcapacity of towers in the industry and the problems facing the telecom industry (see chart). With over 450,000 towers, most experts say there is overcapacity in the business, as a result of which most companies are in financial strain. This could only worsen, as the Supreme court has cancelled 122 licences of eight new operators. As a result, experts estimate tower operators may see at least 10 per cent of their business impacted. These factors have put pressure on valuations of tower assets.

The company is also exploring possibilities of a Singapore listing of its fully owned subsidiary, Flag Telecom, which owns 65,000 km of submarine cable assets across the world. The plan is to raise Rs 7,500 crore by selling 75 per cent stake in the company.

Earlier, Deutsche Bank was mandated to divest Flag but the high valuation had made a deal difficult at that point.

An RCom spokesperson declined to comment on the issue. Blackstone India Chairman Akhil Gupta, when contacted, said: “It is our policy not to comment on market speculation”. A query to Carlyle India did not elicit any response.

The tower deal, which has been long under negotiations, will help RCom substantially cut its net debt of around Rs 35,000 crore. With the two deals, RCom would be able to wipe out Rs 22,500-27,500 crore of leverage from its books.

The group had earlier announced it might look at getting a strategic partner or investors to take up to 26 per cent stake in RCom. However, the plan had been on hold in view of the market conditions.

Expert are hopeful that new business from 4G players and the proposed expansion by 3G operators would help tower companies improve tenancies in the near future.

For instance, the Mukesh Ambani-owned Reliance Industries has floated a request for proposal to take at least 40,000 towers on lease, and sources say RCom is one of the companies to have shown interest.

In June last year, RCom had managed to strike a deal with GTL Infra to form a tower company and transfer its tower holdings to the new entity. The total deal value was expected to be around Rs 50,000 crore. However, the deal fell apart in September over differences on valuation and agreements signed as per the term sheet. Since then, RCom has been trying to engage in discussions with companies and financial investors to sell its business.