Ambani brothers ink Rs 12,000-cr tower deal

RCom could use Rs 800 cr a year it gets as rental from RJIL to service debt

Anil Ambani-controlled Reliance Communications (RCom) on Friday signed the much anticipated agreement with Mukesh Ambani’s Reliance Jio Infocomm Ltd (RJIL) to rent out its towers across the country for Rs 12,000 crore. The deal involves RJIL utilising 45,000 of the 50,000 towers owned by RCom.

Details of the deal have not yet been divulged, but sources in the know say it is for 15 years and would mean RCom would get an assured income of Rs 800 crore a year.

It’s a sweet deal for RJIL, too. The company’s rental payment of Rs 14,814 per tower per month to RCom would be less than half the prevailing market rate of Rs 30,000 per tower per month. RJIL, which plans to roll out 4G services next year, would have had to spend Rs 14,500 crore to set up its own infrastructure, apart from the time that would have taken.
 

For RCom, the additional revenues would mean a reduction in the Rs 2,780-crore annual interest payment burden by a third. It currently has debt of Rs 37,000 crore. Of this, Rs 11,000 crore could be serviced through the additional income from rentals. However, the market did not react much to the move. On a day that saw the Bombay Stock Exchange’s Sensex closing 0.46 per cent lower than its previous close, the shares of RCom declined 1.4 per cent to Rs 116.40 and Reliance Industries 0.97 per cent to Rs 784.60 apiece.

RCom’s president & CEO (wireless), Gurdeep Singh, says: “There are many benefits. Our tenancy ratio, currently at 1.8, will move up to 2.8. That will substantially reduce our cost of operations. Also, apart from rentals, RJIL will also pay for fuel and power costs. The income will help us reduce our interest costs substantially. We expect our Ebitda margins to rise. It will also improve the valuation of our tower business.”

With an average tenancy of around 1.8 at present, tower company Reliance Infratel, RCom’s wholly-owned arm, mostly has captive tenants from its CDMA and GSM businesses. Its tenancy is lower than those of its competitors like Viom (2.38), or even Indus (1.94). With the new deal, its average tenancy will rise to 2.8, making it the best among all tower players.

An RCom statement said the agreement “provides for joint working arrangements to configure the scope of additional towers to be built at new locations, to ensure deep penetration and seamless delivery of next-generation services”.



On Friday’s deal follows the Rs 1,200-crore inter-city optic-fibre-sharing agreement the two companies had signed in April. In a few months, the two are also expected to sign another deal that will entail RJIL sharing its intra-city fibre network. RCom is also close to selling out 70-80 per cent stake in Reliance Globalcom, which controls the submarine cable business, at an expected price of up to Rs 6,000 crore. These measures are expected to reduce the company’s debt by a third.

Reliance Infratel has over 50,000 towers, a majority of which are linked with a fibre-optic backbone, crucial for making possible high-speed data transfer that is required for 4G. Of these, 21,000 towers are in the 330 cities where RJIL is expected to launch 4G services in the first phase.

According to industry estimates, 30,000-35,000 towers (one in 10) in the country would have a fibre-optic backbone and most of these are owned by the younger Ambani brother.

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A WIN-WIN DEAL
Benefits for Reliance Jio

• Will pay Rs 12,000 crore as rental to utilise 45,000 towers (additional payment for fuel and power). This comes to an average Rs 14,814 for each tower per month which is half the prevailing rate of Rs 30,000 a month
• The company would have had to spend Rs 14,500 crore to build a similar infra on its own, apart from the time that would have taken. That would have delayed its rollout plans
• RCom’s towers are mostly linked with a fibre-optic backbone (not microwave communications). This is key for a company betting on 4G and high data speeds. No other tower company has so much of fibre-optic backbone connecting the towers

Benefits for RCom

• It gets an additional revenue of Rs 800 crore a year which will help it reduce its interest burden and service a large part of its debt
• Its tenancy ratio will go up from 1.8 to 2.8, making it the best in the industry. The valuation of the tower business will also rise
• The company will be able to improve its Ebitda margins