RCom's tower sale race opens again

Talks with Tillman may have gone cold

The race for Reliance Communications’ (RCom) tower assets has opened up once again as talks with Tillman have gone cold due to differences over valuation.

Last December, Tillman, led by former Orange chief executive officer (CEO) Sanjiv Ahuja, and private equity group TPG, had entered into a non-binding agreement to consider the acquisition of RCom’s tower business. TPG walked out in March and Tillman was supposed to look for alternative investors to fund the deal. However, the talks have gone cold as the price offered by Ahuja was not acceptable to RCom.

The company is eyeing Rs 20,000 crore from the sale of its tower business, which will help enable it to bring its debt down from the present Rs 43,000 crore.

Calls and e-mails to Tillman’s Sanjiv Ahuja remained unanswered.

RCom said the tower sale deal was not off the table. In response to a questionnaire sent to RCom on the tower deal, Gurdeep Singh, CEO, Reliance Communications (Wireless Business), said: “We have remained engaged in discussions with several bidders for the sale of RCom’s tower assets, and, in the interests of achieving higher certainty and maximum value creation, we intend to close the tower assets sale soon, after conclusion of our ongoing merger discussions with Aircel. Based on these two strategic transactions, we remain committed to reducing RCom’s debt by over 75 per cent to around Rs 10,000 crore within the current financial year.”

RCom has been scouting for a buyer for its tower business for the past several months and has engaged with several funds for the same, but the deal is taking much longer to close, as the company is also simultaneously working on the merger of its wireless business with Aircel, which will, in some way, also impact the tower business. Bankers claim that valuations aside, buyers wanted clarity on future tenancies and redundancies arising out of the merger before closing the tower deal.

Analysts have expressed concerns, as RCom changed course and decided to close the merger with Aircel before the tower deal. On June 2, Moody’s had issued a note, which mentioned the change in RCom’s priorities vis-à-vis closing the two deals. Nidhi Dhruv, senior analyst at Moody’s, wrote, “RCom has also re-prioritised its strategies again, and now plans to announce the final binding tower sale transaction within two months from the completion of discussions with Aircel. This is a significant delay from our earlier expectations for the tower transaction to be confirmed within the June quarter. Cumulatively, these transactions, when consummated, could benefit RCom substantially. However, in our view, changes in the company’s strategy continue to delay execution of its plans.”

Investment banking sources claim potential buyers have been asking for guarantees or better tenancy ratios from RCom ahead of the sale. With the merger of Aircel with RCom, the new entity will look at improving penetration and acquiring more sites from RCom’s tower subsidiary Reliance Infratel. It may be recalled that other than RCom, Jio has signed a tower-sharing deal with RCom. In 2014, RCom had inked a deal with Jio to share its tower infrastructure. With the code division multiple access business, or CDMA, gone, tenancies of the tower business would also be impacted. In order to address these issues, the company may have decided to push the merger ahead of the tower asset sale.

The merger would lead to some tower redundancies wherever there are overlaps. People working on the deal estimate the merger could result in reduction in sites (estimated to be 1,500-2,000) for RCom’s tower business. Reliance Infratel currently has 43,000 sites across India. Also, investors have been seeking greater clarity on tower tenancies. Currently, RCom’s tower tenancy ratio is below two, while it is 2.19x for Bharti Infratel. RCom estimates the merged entity, which would also be a bigger player, would be a positive for the tower business.

BEYOND THE IVORY TOWER

• DECEMBER 2015
  Tillman Global Holdings and TPG enter into exclusive talks with RCom to acquire tower business
   
• JANUARY 2016
  The deal gets extended by a few weeks
   
• MARCH 2016
  TPG walks out and Tillman starts scouting for financiers
   
• APRIL 2016
  RCom’s talks with Tillman uncertain over valuations. Investors seek more clarity on future tenancy
   
• MAY 2016
  RCom opens talks with other US-based funds, which have access to proprietary capital
   
• JUNE 2016
  Moody’s issues note expressing concern over tower sale delay. RCom will divest tower business after closing its merger with Aircel