Brookfield-led team to buy out Jio's tower arm in multi-stage deal
Proceeds will allow Mukesh Ambani-led RIL reduce debt & free up cash to take on rivals Airtel and Voda Idea.
Once the transactions are closed, the Canadian alternative assets manager and its partners would own 100% of India’s largest telecom tower company with 170,000 towers through Tower Infrastructure Trust. The proceeds will allow Mukesh Ambani-controlled RIL reduce debt at its telecom unit, Reliance Jio Infocomm, and free up cash to take on rivals Bharti Airtel and Vodafone Idea.
“This is the single largest foreign investment in an Indian infrastructure vehicle,” RIL said.
TOWER, FIBRE BIZ SPUN OFF EARLIER THIS YEAR
The oil-to-telecom conglomerate said talks were ongoing also to monetise the group’s fibre assets, Jio Digital Fibre, under a similar deal structure, but did not name any potential investors. The tower and fibre businesses were both spun off from Jio earlier this year.
Under the deal announced on Friday, Reliance Industrial Investments & Holdings, a wholly owned Reliance Industries unit and the sponsor of Tower Infrastructure Trust, would issue units in the trust to Brookfield affiliate BIF IV Jarvis India and some co-investors. Brookfield and its partners would become the sponsors of the trust, holding all the units, while the Reliance Industries subsidiary would become a co-sponsor, but hold no units.
The trust currently owns 51% of Reliance Jio lnfratel, where Reliance Industries holds the remaining 49%. On receiving the funds, the trust would buy out Reliance’s 49% stake, repay Rs 12,000 crore to Jio and “certain existing financial liabilities of Reliance Jio Infratel”, besides investing for the tower firm’s growth, Reliance Industries said.
Jio would also transfer its proceeds of Rs 12,000 crore to the Reliance Group against certain financial liabilities owed to the parent.
After the completion of the proposed deal, Reliance Jio lnfratel would have debt of Rs 16,000 crore.
This is the second investment this year that Brookfield is making in a venture controlled by Mukesh Ambani. In March, it had agreed to buy the loss-making East-West Pipeline, earlier known as Reliance Gas Transportation Infrastructure, at an enterprise valuation of Rs 13,000 crore.
“The big investment from Brookfield will strengthen Jio’s balance sheet, boost its cash reserves and help it build a sizeable war chest to fight Airtel and Vodafone Idea and consolidate its gains in the mobile broadband turf,” said Rohan Dhamija, a partner and the head of India and Middle East at Analysys Mason.
Brookfield will seek to obtain more tenants for the tower assets, Reliance said. “All expansion will be by Brookfield. This is monetisation (for Reliance). We have invested and now we have exited. Same we will do for fibre,” Reliance Industries chief financial officer V Srikanth told reporters.
ET had reported in its June 12 edition that Brookfield was close to signing a pact to invest in the tower assets.
Jio had demerged the tower and fibre businesses in the quarter ended March to Reliance Jio Infratel and Jio Digital Fibre. The fibre network is 700,000 route km long. Separating the two helped the telecom company remove liabilities of about Rs 1.07 lakh crore from its balance sheet. Jio had debt of Rs 75,000 crore at the end of June.
RIVALS RAISING FUNDS
Bharti Airtel and Vodafone Idea have recently beefed up their books with each raising Rs 25,000 crore via rights issues. Both are also considering stake sales in their tower units to raise further cash. All three telcos are trying to strengthen their balance sheets also by reducing debt amid continuing need to invest in their 4G networks besides preparing for the upcoming spectrum auction where 5G airwaves will be up for sale for the first time.
Jio has a right to use the tower and fibre assets, for which it has started paying the trust. “This has resulted in recognising a right-of-use asset and a corresponding lease liability of Rs 6,633 crore as at 1st April 2019,” Jio said. Anshuman Thakur, Jio’s strategy head, said Jio’s longterm lease was “capitalised”.
Reliance Jio Infratel’s portfolio of 170,000 towers tops those of Bharti Infratel and Indus Towers, which together have 163,000 towers. Jio acquired 45,000 towers from Reliance Communications and built the rest.
Bank of America Merrill Lynch estimates that of the 125,000 towers built by Jio, around 40,000 were predominantly monopoles and would not support other tenants unless incremental capex was made. But the assets are likely to generate a 12-13% return based on the tenancy lease assumptions.
India’s tower landscape is dominated by three players — Jio Infratel, Bharti Infratel-Indus and American Tower Corporation — who control about 90% of tenancies.
Analysts expect 900 million 4G users on an average consuming 12 GB of data and that most of the data demand is set to be met using towers rather than by small cells or in-building solutions, making the deal timely.