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Infratel-Indus merged co will be an attractive buy for PE investors: Akhil Gupta

​​“From a PE perspective, the structure of the proposed Infratel-Indus merged entity is better as there are two big shareholders (read: Airtel and Vodafone), but nobody has a majority stake,” Gupta said.

, ET Bureau|
Last Updated: May 03, 2018, 09.13 AM IST|Original: May 02, 2018, 11.46 PM IST
KOLKATA: Bharti Infratel chairman Akhil Gupta said the combined tower company that will emerge after the merger with Indus Towers will be more attractive structurally for deep-pocketed global private equity (PE) firms to buy into as it will not have a single majority shareholder.

“From a PE perspective, the structure of the proposed Infratel-Indus merged entity is better as there are two big shareholders (read: Airtel and Vodafone), but nobody has a majority stake,” Gupta said on Wednesday on an analyst call on the recently announced mega towers sector merger.

Last week, Bharti Airtel and UK’s Vodafone announced plans to jointly control the future merged tower entity, to be called Indus Towers, as equal shareholders with equal board representation. The merger is expected to close by March next year.

Gupta’s optimism about the Infratel-Indus combined entity’s ownership structure being attractive to global PE investors comes at a time when analysts expect the valuation of the combined tower entity to go up several notches if Airtel and Vodafone exit, especially since the tower company will then be perceived as an independent company.

Some brokerages such as Sanford C. Bernstein expect Bharti and Vodafone to sell their combined stakes in the Infratel-Indus merged entity to a third party, which could be deep-pocket global investors such as KKR, Providence, Brookfield and American Tower Corp.

Gupta said neither Airtel nor Vodafone would be shackled by any lock-in periods, in that, they would be free to sell their respective stakes in the Infratel-Indus combined entity, post-merger closure. However, he said that for Vodafone to maintain its equal rights and equal shareholder status in the combined tower company, “its stake could not fall below a certain percentage (in relation to Bharti Airtel)”, which he did not disclose.

Under the terms of the merger agreement, Vodafone and Airtel will be equal shareholders of the Infratel-Indus combined entity, even though the Sunil Mittal-led telco will hold a larger stake in the JV. Airtel will own either 37.2% or 33.8% in the combined tower entity, while Vodafone either 29.4% or 26.7%, depending on whether Kumar Birla-led Idea Cellular sells its 11.15% stake in Indus for Rs 6,500 crore cash or retains a 7.1% stake.

In this context, Gupta said “even if Idea Cellular cashes out, it will continue to enjoy the benefits of the most-favoured nation or `MFN’ clause with the Infratel-Indus merged entity”. By virtue of the MFN clause, “Idea will be offered the same discounts offered to any other preferred customer by the merged tower entity in future,” he said.

Idea is widely expected to exit the tower company as it needs the Rs 6,500 crore cash to lower the debt of the new entity to be formed after its merger with Vodafone India. Idea though hasn’t officially disclosed its plans.

To analyst queries, Gupta said post-closure of the merger, it would be for “the newly constituted board of the Bharti Infratel-Indus merged entity to take any potential calls on share buy-backs from existing shareholders,” asserting that “it is premature” to speculate on such matters before closure of the merger.

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