Mumbai-based telecommunications infrastructure company GTL Infrastructure will buy the telecom tower assets of mobile phone firm Aircel for Rs84 billion ($1.8 billion).
The deal is structured as an asset purchase by GTL of Aircel's 17,500 existing towers, which comprise 21,000 tenancies. In addition to the existing towers, Aircel will also provide 20,000 new towers to GTL over a three-year period.
Aircel is the seventh largest wireless telecom operator in India with 29 million subscribers as of November 2009. It is a joint venture between Malaysian telecom company Maxis Communications, the largest mobile phone service provider in Malaysia, and India's Apollo Hospital Group. Maxis owns 74% of Aircel.
This transaction will make GTL the world's largest independent tower company with a portfolio of more than 32,500 towers across all 23 telecom circles in India. The deal, which requires court approval as it is being done through a slump sale process for tax reasons, is expected to be completed by May.
GTL will fund the deal by raising Rs34 billion of fresh equity, while the balance will come from debt. SBI Capital Markets has been mandated to raise the debt, which is expected to be made up primarily of term loans provided by a consortium of banks led by India's largest bank, the State Bank of India.
Citi and Barclays Capital are buy-side advisers to GTL Infrastructure. Nomura, Rothschild and Standard Chartered ran a sell-side auction on behalf of Aircel. For both Citi and Nomura, the deal followed the advisory role they played on the $2.6 billion merger between Tata Teleservices and Quippo.
"Emphasis [for tower deals] has shifted from monetisations and value illumination to true mergers that consolidate the sector, build scale and maximise tenancies," said Nikhil Eapen from Citi's telecom, media, technology group who worked on the GTL deal and was also involved in a number of earlier tower deals. "These consolidations enable independent tower operators to deliver cost and capital efficiencies to an India wireless sector that is itself facing an unprecedented level of price competition."
The deal, which has been ongoing since July, saw the seller run a two-stage process. At the first stage bids were invited from a variety of parties including some private equity players. However, given the specifics of the deal, it was never likely to end up in the hands of a private equity-led consortium, said sources close to the situation. Some potential buyers did have private equity investors provide financial backing, however. The short-listing after the first round was mostly price-driven, but included other factors such as certainty of funding and timing.
In addition to GTL, the second stage saw players such as Indus Towers, Tata-Quippo and others bidding with GTL, who ultimately emerged as the winner.
The sell-side benefited from the fact that there are few other tower portfolios expected to become available in India. However, valuations of tower businesses have fallen significantly from $200,000 per tower, which some of the early deals were able to achieve, and this deal which was struck at around $100,000 per tower. The drop in valuations is attributable both to the changed financing market following the subprime-sparked financial crisis, and to industry specific factors such as falling tariffs in India.
However, the deal has resulted in a satisfied buyer and seller. GTL got an anchor tenant, which it did not have earlier, while Aircel exited its tower business at a good price.
