Telcos move to sell stake in tower arm credit positive: Fitch

Telecom operators' plans to sell stake in tower assets are credit positive for the sector and will give margin to them for expansion of data services, credit rating firm Fitch Ratings said today.
"Indian telcos plans to sell tower assets or stakes in tower subsidiaries should provide headroom to allow data-related capex with less strain on companies' credit metrics," Fitch Ratings said.
Bharti Airtel announced sale of 10.3 per cent stake in its tower subsidiary Bharti Infratel for about Rs 6,194 crore to KKR and Canada Pension Investment Board.
"We expect Infratel's stake sale will benefit Bharti's March 2017 FFO (fund from operations)-adjusted net leverage, which we forecast to be around 1.8-2 times - slightly below the threshold above which we may consider negative rating action," Fitch said.

It said that Bharti will use the proceeds to pay down some debt and to fund its USD 235 million acquisition of 2,300 MHz spectrum from Tikona Digital in five Indian telecom coverage areas, or circles.
Vodafone India and Idea Cellular, which are merging, also intend to sell Idea's 11 per cent stake and Vodafone India's 42 per cent stake in India's largest independent tower company Indus Towers, a joint venture between Bharti, Vodafone India and Idea.

"Such a sale would help reduce the debt at the Vodafone India-Idea combined entity. With a sale - and assuming opex and capex synergies - we estimate the combined entity's net debt to EBITDA ratio should improve to around 3-3.2 times with net debt of USD 16.1 billion," Fitch said.

Idea and Vodafone India intend to contribute about USD 7.9 billion and USD 8.2 billion of debt, respectively, to the combined entity.
Reliance Communications is in the process of selling 51 per cent stake in its tower business - Reliance Infratel Ltd (Infratel) - for USD 1.6 billion, and intends to use the proceeds to pay down debt.
"However, the sale will not be sufficient to ease Rcom's financial stress, given its high indebtedness and plan to merge its wireless operations with Aircel Limited. We do not foresee FFO-adjusted net leverage reducing to below 4.5 times for the foreseeable future," Fitch said.

Despite these developments, the rating agency continued to have a negative outlook on the Indian telecom sector as competition will continue to remain high, and consolidation is not likely to return any pricing power to the operators in the near term.
"The entry of Reliance Jio, a subsidiary of Reliance Industries Limited, has accelerated industry consolidation. The ongoing consolidation is likely to leave four larger operators - Bharti, Jio, the combination of Vodafone India and Idea, and the combined Rcom and Aircel Limited," Fitch said.