NEW DELHI (Reuters) – Reliance Communications’ (RLCM.BO) plan to open up its telecoms tower unit to investors signals the ammunition India’s No. 2 mobile operator can tap as it aims to cut its huge debt in a fiercely competitive market.
Carriers in India’s cut-throat cellular sector, also the world’s fastest-growing – with more than 600 million users – have been shedding their tower businesses and renting capacity to cut debt and lower costs.
Last week, Reliance Comm, controlled by billionaire Anil Ambani, unveiled plans to sell up to a 26 percent stake in itself, after India sold licences for 3G wireless services at a price far higher than expected.
Talk about a stake sale started soon after controlling shareholder Anil and his long-estranged brother Mukesh ended an agreement that forbade them from competing on each other’s turf, freeing Anil to bring new investors into his debt-laden company.
On Monday, Reliance Comm said its board approved a proposal to bring investors into its tower arm and help create an independent tower company. The tower unit could be valued at more than $5 billion based on recent telecom tower deals in the Indian market.
“The game plan is to add as much as ammunition possible to your balance sheet,” said New Delhi-based Jagannadham Thunuguntla, head of equity at SMC Capitals, referring Reliance Commm’s plans. “Be it a stake sale in the mobile company or the tower unit.”
Demand for tower assets is set to increase as winners in the recent licence auction start to roll out third-generation services.
Brokerage Anand Rathi Financial Services estimates Reliance Comm has consolidated net debt of 341 billion rupees ($7.3 billion) after the 3G licence auction and that could almost halve if it strikes a deal through a mix of cash and stock.
By 0830 GMT, Reliance Comm shares were up 3.2 percent in a flat broader Mumbai market .BSESN, after rising as much as 5.2 percent in early trade.
Nearly 10 million shares of Reliance Comm were traded on the National Stock Exchange, compared with full-day average volume of 9.3 million over the past 30 days.
After being one of the worst performers in the benchmark Mumbai index for much of 2010, Reliance Comm’s shares have erased losses for the year on talks for the stake sale and are up about 6 percent so far this year.
Reliance Comm is looking at options including a “demerger and/or other suitable value-creating options” of the tower assets of its Reliance Infratel unit, and would be paid in cash and stock.
The company, which had earlier planned to sell 10 percent of Reliance Infratel through an initial public offering, said it was in “advanced stage” talks with several international and local strategic and financial players for the tower unit stake and expected to announce a deal shortly.
“The Infratel IPO doesn’t seem to be happening — the overall market conditions are not great and the mood in the telecoms sector is also not favourable. So how to monetise the assets in one form or the other,” Thunuguntla said.
Reliance Comm also said its aim was to form an independent tower company not owned or controlled by a telecoms carrier that would help get more contracts among competitors and from firms who have obtained spectrum in recent auctions.
The Economic Times newspaper named India’s GTL Infrastructure (GTLI.BO), U.S.-based tower firm American Tower (AMT.N) and a consortium of Crown Castle (CCI.N) and private equity Blackstone (BX.N) among the suitors.
GTL, which earlier this year agreed to buy mobile firm Aircel’s towers in a $1.8 billion deal, is India’s largest tower company without any holding by a mobile carrier.
A spokesman for GTL declined to comment.
Brokerage Religare Capital markets said Reliance Industries (RELI.BO), which is buying Infotel Brodaband that emerged as the only firm to secure nationwide broadband spectrum, could also be a likely suitor for the Reliance Comm tower assets as it would need tower and fibre infrastructure to roll out broadband. ($1=46.7 rupees)
By Devidutta Tripathy
(Additional reporting by Rajesh Kurup in MUMBAI; Editing by Ranjit Gangadharan and Anshuman Daga)