RCom signs term sheet with Brookfield to sell 51% stake in tower unit for Rs 11,000 cr

PUNE, India - Oct. 17, 2016 - PRLog -- NEW DELHI: Reliance Communications (RCom) has signed a non-binding pact with Canada's Brookfield Infrastructure Group to sell a majority stake in the Anil Ambani company's tower . 11,000 crore, which will unit for ` be used to bring down debt. The news sparked a 2.6% rise in the RCom stock.

As per the term sheet, RCom tower unit Reliance Infratel will transfer its assets and related infrastructure into a special purpose vehicle (SPV), which will be majority held by the world's second-biggest manager of alternative assets such as real estate and private equity with the Indian company holding 49%.

"RCom will continue as an anchor tenant on the tower assets, under a long-term MSA (master services agreement), for its integrated telecommunications business. RCom will receive an upfront cash payment of ` . 11,000 crore from the proposed transaction," the Indian telecom company said in a statement on Friday. The deal values the tower assets of RCom at over `. 21,500 crore. "RCom will also enjoy 49% future economic upside from the towers business, based on certain conditions."

Brookfield declined to comment beyond the information provided in the statement.

The proposed deal is subject to "definitive documentation, customary approvals and certain other terms and conditions. Accordingly, there can be no certainty that a transaction will result", the statement said.

Reliance Infratel is 96% owned by Reliance Communications. The 4% held by minority and institutional investors such as George Soros' Quantum (M), NSR Partners, Galleon, HSBC Daisy Investment (Mauritius), Drawbridge Towers, Investment Partners B (Mauritius) -which invested $287 million in 2007 -will be a part of balance 51% to be held jointly with Brookfield.

Sources said under the pact, Brookfield can increase stake in the SPV if certain financial milestones are not met.

As things stand, the entire `11,000 crores will be used to lower RCom's net debt that stood at `42,071crore at the end of the first quarter of the current financial year. The combination of RCom's wireless business with Aircel, which has already been signed and announced, will reduce the telecom operator's debt by another `14,000 crores. Both the deals combined will reduce RCom's debt to around `17,000 crores.

"RCom will monetize its real estate to raise another `5,000 crores, and reduce overall debt to `12,000 crores," a person familiar with the matter added.

ET had reported on July 9 that the Canadian private equity fund was looking to buy a majority stake in the RCom tower unit. RCom's stock ended at `47.90 on the Bombay Stock Exchange on Friday , outperforming a flat broader market, having risen 3.6% during intraday trade.

"RCom and Brookfield expect considerable growth in tenancies based on increasing 4G offerings by all telecom operators, and the fast accelerating trends in data consumption," the statement said. Advisers on the deal include investment banks UBS and Ambit.

FURTHER ACQUISITIONS

The statement also signaled further acquisitions. "RCom and Brookfield also see several opportunities for consolidation in the towers industry in India that will further enhance growth and value creation in the future."

To be sure, this is the second t time RCom has entered into such an accord to sell its tower units. Last December, it announced that the Sanjiv Ahuja-led Tillman Global Holdings backed by private equity player TPG had signed a non-binding pact to buy its tower assets for around `21,500 crores. But TPG pulled out subsequently overvaluation differences, and Tillman failed to find a suitable financier, bringing Brookfield into the picture.

Once these two transactions are complete, RCom will be left with its enterprise business, data centers, optic fiber, and undersea cables, besides holding 50% in the new telecom company jointly owned by Aircel.

"This puts Rcom in a better position than it was yesterday , but its challenge to strike sustainable profits still remains, because nowhere in the world have we seen a number five or six operators make money ," said Sanjay Kapoor, former chief executive officer, Bharti Airtel. "The transformation and execution struggle in a competitive market with low pricing power still lies ahead."

After investing $2 billion in India since 2009-10 when it set up its local office, Brookfield is planning to invest $2 billion more in the country over the next two-three years to buy out upscale offices and commercial towers, stranded roads, power and utility infrastructure. With assets under management of $250 billion, Brookfield, listed on the New York and Toronto exchanges, has surpassed Wall Street heavyweights Carlyle, KKR or even Apollo as the world's second-biggest manager of alternative assets.

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