Tata Comm exits Neotel for $295 mn

Money to be used to repay Neotel debt

Tata Communications has sold its majority stake in South African internet service provider Neotel to Econet Wireless Global for $295 million (about Rs 1,992 crore).

Liquid Telecom, majority owned by Econet Wireless Global, entered into an agreement to acquire Neotel, the company stated.

It will pay Tata Communications and minority shareholders led Nexus Connexion 6.55 billion rand ($430 million) to create the continent’s largest broadband network and business-to-business telecommunications service.

Tata Communications had acquired a 68.5 per cent controlling stake in Neotel in 2009.

Liquid Telecom is partnering Royal Bafokeng Holdings, a South African investment group that has committed to take a 30 per cent stake in Neotel.

Tata Communications is expected to use the money to repay Neotel’s debt, according to people familiar with the development.

Last year, Tata Communications had tried to sell Neotel to Vodacom. The transaction lapsed in March because of regulatory complexities and unfulfilled conditions.

Analysts expect Tata Communications will lower its consolidated debt through the asset sales it is undertaking of late. Elara Capital expects debt to fall by 68 per cent, led by deals to sell data centres and Neotel.

Abhishek Gupta, analyst at IDFC Securities Research, said, "Monetisation of data centre and Neotel operations would significantly reduce consolidated net debt of Tata Communications to Rs 6,500-6,700 crore (from Rs 1,15,00 crore as of March 2016) with FY17 net debt to Ebitda ratio at about 2.0x. We believe a healthier balance sheet along with sustain execution in global data business (87 per cent of core Ebitda) would drive stability."

The deal with Liquid Telecom will create the largest pan-African broadband network spanning 12 countries from South Africa to Kenya. Econet will acquire wireless spectrum and broadband access to South African businesses and homes after the purchase.

FirstRand Bank, the only South African Bank in India, advised Tata Communications for the deal.

Nic Rudnick, chief executive officer of Liquid Telecom, said, "We will increase investments in Neotel to cater to rapidly accelerating mobile and enterprise traffic, enabling us to launch new products and services." Analysts expect the deal to close in the later part of FY17.

"We feel there is stronger likelihood the deal will go through this time around, given the previous deal with Vodacom, an existing player in South Africa, was called off as it was already holding 700 MHz spectrum… Liquid Telecom has no presence in South Africa and, thus, it will ensure a level-playing field," said Aliasgar Shakir, analyst at Elara Global Research.

The sale of Neotel is part of Tata Group Chairman Cyrus Mistry's plans to exit loss-making businesses worldwide. A year-and-a-half after Mistry became group chairman in December 2012, Tata Power sold a coal mine in Indonesia for $250 million. Tata Communications sold 16 data centres for $633 million this May.

The group is trying to sell its UK steel business and is in talks with German company ThyssenKrupp to merge the rest of its European steel business in a joint venture. Indian Hotels, which operates the Taj group of hotels, has said it wants to sell the Taj Boston.