Debt-ridden Indian telecoms – Bharti Airtel, Reliance Communications, Vodafone and Idea Cellular – are in the process of selling telecom tower business and Fitch Ratings says that the development will be good for their Capex (capital expenditure) plans.
The entry of Reliance Jio Infocomm is forcing rival telecom operators to enhance network coverage and quality of mobile Internet services with increased spending towards telecom equipment.
Airtel has sold 10.3 percent stake in its tower subsidiary, Bharti Infratel, for $952 million to KKR and Canada Pension Investment Board. Bharti will retain a 61.7 percent stake in Infratel.
“We expect Infratel’s stake sale will benefit Bharti’s March 2017 FFO-adjusted net leverage, which we forecast to be around 1.8x-2.0x (FY16: 1.8x; excluding USD5bn in deferred spectrum costs) – slightly below the threshold above which we may consider negative rating action,” Fitch Ratings said.
Airtel will use the proceeds to pay debt and fund its $235 million to buy Tikona Digital’s 4G business in five Indian telecom circles with an eye on 2,300MHz spectrum. Airtel earlier acquired Telenor India, which has 43MHz of 1800MHz spectrum in seven circles, to enhance its 4G spectrum.
Vodafone India and Idea Cellular, which are merging, also intend to sell Idea’s 11 percent stake and Vodafone India’s 42 percent stake in Indus Towers, the largest independent tower company owned Bharti Airtel, Vodafone India and Idea Cellular.
Such a sale would help reduce the debt at the Vodafone India-Idea combined entity. With a sale – and assuming Opex and Capex synergies – Fitch Ratings estimates the combined entity’s net debt/EBITDA should improve to around 3.0x-3.2x (pro forma 4.4x) with net debt of $16.1 billion.
Idea Cellular and Vodafone India intend to contribute about $7.9 billion and $8.2 billion of debt, respectively, to the combined entity. The combined entity, on a pro forma basis, generated revenue of $12.2 billion or 40 percent revenue market share – and $3.6 billion in EBITDA for the 12 months ending December 2016.
Reliance Communications is in the process of selling 51 percent of its tower business – Reliance Infratel for $1.6 billion.
The sale will not be sufficient to ease Reliance Communications’ financial stress, given its high indebtedness and plan to merge its wireless operations with Aircel. Fitch does not foresee FFO-adjusted net leverage reducing to below 4.5x for the foreseeable future.
The ongoing consolidation is likely to leave four larger operators – Bharti Airtel, Reliance Jio, Vodafone India-Idea, and Reliance Communications-Aircel.