SBI, Stanchart commit $4 billion to GTL Infra; promoter funding key to deal completion.
Saudi Telecom Company, one of the largest listed mobile companies in West Asia, is likely to pick up a stake of 10-15 per cent in the merged GTL-Reliance Infratel entity.
Sources with direct knowledge of the developments said the merged entity was likely to dilute this much equity to a strategic investor at an equity value of $9 billion (Rs 40,500 crore) once the deal neared completion around November. The dilution would be at a minimum premium of 20-25 per cent to the then market price.
Private equity funds like Carlyle, Blackstone and even Abu Dhabi Investment Corporation (ADIA) – the sovereign wealth fund of the Abu Dhabi government — have also shown keen interest to invest in the venture.
Both STC and ADIA did not respond to Business Standard’s email query.
| TOWERING STORY COMPARISON WITH GLOBAL PEERS | |||
| 2009 | (2013E) | ||
| American Tower | Crown Castle | GTL Infra | |
| Number of towers | 27989 | 23935 | 105000 |
| Tenancy ratio | 2.83 | 3.29 | 2.5 |
| Capex/tower (US$) | 250000 | 250000 | 80000 |
| Rental/tenant/month (US$) | 2000 | 2000 | 796 |
| EBITDA (US$ mn) | 1174 | 1013 | 1248 |
| Debt/EBITDA | 3.59 | 6.54 | 2.2 |
| EV/tenant (US$) | 267814 | 222304 | 100000 |
| Source: Companies and Industry Estimate | |||
“Post the Aircel deal, there is an indirect business relationship with GTL and Saudi Telecom. Aircel is 74 per cent owned by Malaysian largest mobile phone company Maxis. And, in Maxis, Saudi Telecom had picked up a 25 per cent stake. Also, GTL has been very active in the Saudi kingdom for the last 10 years in the network service business. So, there is a comfort zone that already exists between the two,” said an investment banker familiar with the ongoing negotiations.
GTL Infra Chairman Manoj Tirodkar, told Business Standard today that he could comment on deal specifics, as they were being worked out. “We have several options using our own cash and contribution from founders, raising debt if need be…securitisation of future receivables. Potentially raising equity, if need be. At present, we don’t need equity. We believe we have adequate cash but all options can be used as and when required.”
Standard Chartered and SBI Caps have also agreed to underwrite the Reliance Infratel-GTL tower deal, with close to $4 billion (Rs 18,000 crore) commitment. At least one more foreign bank is also expected to join, two independent sources involved in the ongoing negotiations said.
Reliance Infratel yesterday agreed to merge its 50,000 tower portfolio with GTL Infra to create the world’s largest independent telecom tower company.
While SBI Caps is advising GTL Infra with the debt financing, Standard Chartered was the exclusive financial advisor and banker for the transaction.
The combined entity with 82,500 towers and 125,000 tenancies from 10 operators is expected to have a debt equity ratio of 1:1 and a debt/Ebitda ratio of around 3. So, raising debt on its balance sheet should not be a problem. Clarity will emerge fully once the valuation and audit exercise near completion.
Tapping group finances
Other than raising debt in the merged entity to finance the deal, GTL also plans to tap the cash in the seven group companies, use the undrawn credit lines of GTL Infra and explore taking loans from the promoters of the two companies, the sources added.
Initially, the cash payout for GTL will be Rs 15,000 crore. This amount will largely be used to pick up the Rs 18,000-crore tab of Reliance Infratel’s debt. GTL Infra’s promoter will also infuse Rs 3,000 crore equity. The operating cash flow of the merged entity will be used as collateral to raise the debt. The balance amount will be made through share swaps between GTL Infra’s promoter and existing shareholders of RCom.
Promoter funding will be a key aspect in the entire financing of the deal. By the available data on the seven global Group entities, post the Aircel transaction, the cash and cash equivalent available with GTL Infra’s promoters – GTL Ltd and Global Holding Corporation – is close to Rs 3,000 crore. While GTL Ltd has Rs 1,575 crore as cash balance, Global Holding Corporation has Rs 900 crore. The five unlisted entities also have a cash flow of $300 million. Even the special purpose vehicle (SPV) that was used to acquire the Aircel tower assets – Chennai Network Infrastructure Ltd —- has Rs 1,000 crore cash left post the Aircel deal financing. Flagship GTL Infra still has Rs 3,500 crore of undrawn credit lines available with it.
Sources add, if the need arises, Anil Ambani may also contribute Rs 3,500 crore as an interest-free personal loan to the combined entity to reiterate his firm commitment. Reliance ADAG or RCom spokespersons could not be asked for an independent verification.
Revenue streams
Keeping in mind the additional rollouts and the first right of refusal on RCom and Aircel towers, the merged entity is expected to have 105, 000 towers, with more than 250,000 tenants by FY’12. It is also expected to have future receivables of around Rs 150,000 crore over the next 15 years. These receivables can also be securitised to raise additional funds, said an investment banker.
Agrees Tirodkar. “As per contractual obligation, we have a two-and-a-half to three per cent escalation every year. We have 15-year locked-in contracts, no incremental capex on the network… We don’t have pass-through expenditure, as that is always paid by the operator. So, we will have a revenue potential of anything between Rs 150,000 to 200,000 crore over a 15-year period,” he told Business Standard.
The value unlocking will further take place as the benefits of the economies of scale will pan out over the next three years. GTL Infra is expected to have a tenancy ratio of 1.5, expected to reach 2.5 by 2013, based on additional demand from BWA, 3G and 2G rollouts.
Similarly, the enterprise value (EV)/tenant is very low in India. For GTL, it currently stands at $76,000, while the EV/tenant for American Towers was close to $267,814 in 2009. So, the scope of value accretion is large and that in turn will impact the valuation of the merged entity significantly, feel telecom analysts.
The combined entity is also expected to save close to Rs 5,000 crore of capital expenditure.
