ATC buys 51% in Viom

Deal valued at Rs 7,635 cr; Srei Infra exits by selling 18.5%; Tata Tele pares holding to 35%

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American Tower Corporation (ATC), a New York Stock Exchange-listed mobile infrastructure company, has acquired a 51 per cent stake in Viom Networks for a cash consideration of Rs 7,635 crore. The deal is seen as the beginning of a consolidation in the sector before a second wave of growth kicks in.

As part of the deal, ATC has purchased a 19 per cent stake from Tata Teleservices (which has pared its holding to 35 per cent), all of Kanoria Group's 18.5 per cent holding, and stakes of some minority shareholders.

Srei Group, led by Kanoria brothers, has divested its 18.5 per cent for Rs 2,952 crore, including Rs 600 crore to relinquish management control, and a fee for signing a non-compete agreement.

After the transaction, while ATC will control a 51 per cent stake in Viom, Tata Teleservices' holding will come down from 54 per cent to 35 per cent; Macquarie SBI Infrastructure Investments Pte and SBI Macquarie Infrastructure Trust will hold 11 per cent, and IDFC Private Equity Fund III will control the remaining three per cent.

As of September 30 this year, Viom had an outstanding debt of about Rs 5,800 crore.

According to Deloitte's Hemant Joshi, the story of ATC, which has a market capitalisation of $40 billion and an enterprise value of $55 billion, is perhaps indicative of an exciting phase for Indian tower companies.

The deal is a win-win for all parties, as it allows several investors to exit in favour of a single entity. This will lead the company to its next wave of growth. Hemant Kanoria, chairman & managing director of Srei Infrastructure, said: "After evaluating several options, we decided to enter into a definitive agreement with ATC. Over the past 10 years, we have built one of the best assets in the telecom tower business with the highest tenancy ratio in the industry and a diversified tenant mix. ATC is poised to optimise these assets. From Srei's perspective, the Viom divestment will have a multi-fold impact on improving profitability and will be accretive to both shareholders and the company."

With an enterprise value of Rs 21,000 crore, the deal has valued each Viom tower at Rs 50 lakh, a discount on the value investors are paying for Bharti Infratel. Bharti Infratel had 86,397 towers as at the end of June this year. According to analysts, the reason for the discount is Viom's lower tenancy, lower revenue per tenant and a less stable tenant mix.

Viom relies on new operators. Nearly 23 per cent of its tenancy comes from new operators, and 33 per cent from Tata Tele. The business stability of Bharti Infratel's anchor tenants is perceived to be higher than Viom's. The deal captures the risk associated with new entrants.

Each Bharti Infratel tower is valued at Rs 85.6 lakh at current market capitalisation. Additionally, Bharti Infratel holds 42 per cent in Indus Towers - its joint venture with Vodafone India and Aditya Birla Telecom - which has 117,579 towers and 261,159 tenancies to date.

By comparison, Viom Networks currently has 42,000 towers across India which will be merged with ATC's 14,000. ATC might be required to acquire all or part of the 49 per cent Viom stake that remains with other shareholders after the present transaction.

ATC has a diversified international portfolio of 39,000 towers across several countries. Its chairman, president and chief executive officer, James D Taiclet Jr, said: "With a population of nearly 1.3 billion people, rapidly growing smartphone penetration and limited fixed-line infrastructure, India's vibrant wireless industry is poised for a sustained period of network investment."

"ATC India's greatly expanded portfolio of towers will enable us to play a key role in providing the communications real estate essential to the deployment of advanced wireless technologies throughout the country, and to support the Indian government's Digital India initiative." Taiclet added.

The Kanoria Group had entered the tower business 10 years ago with 50 towers in a company called Quippo Telecom Infrastructure. Viom was created when Quippo and Tata Teleservices' tower business merged in 2009 to form the largest independent tower company, with over 42,000 towers.