Telecom tower company Viom Networks is eyeing GTL Infrastructure. Sources familiar with the development say feelers have been sent for a merger involving a share swap.
Viom is 53 per cent controlled by the Tatas. Kolkata-based Kanorias, founders of Srei, hold about 27 per cent while foreign institutional investors own 20 per cent. The promoters own 58.3 per cent in GTL Infrastructure.
A share swap is seen a way to avoid heavy cash payouts at this juncture. People following the negotiations said discussions were underway between the two to explore ways to streamline operations.
Sources, however, said talks were at an early stage and might not lead to an eventual transaction. Last year, GTL was trying to merge with Reliance Infratel, the tower arm of Anil Ambani’s Reliance Communications. But the deal fell through.
Hemant Kanoria, chairman and managing director of Srei Infrastructure Finance and a Viom Networks director, told Business Standard, “We are always a value buyer. As a strategy, we have maintained we are looking at tower assets that will add incremental value to us. GTL looks interesting provided the value makes sense.”
Manoj Tirodkar, founder and promoter of the Global Group, which includes GTL and GTL Infrastructure, was not available for comment. The company’s spokesperson refused to comment on “market speculation”.
In a recent interview, Tirodkar said he would support efforts to bring tower companies together. “We can’t have five tower companies in India. Consolidation has to happen to unlock value,” he said, adding, “I cannot be emotionally attached at the cost of business and my shareholders. If a merger or a strategic partner can bring value, so be it. I won’t stop it for fears of (my stake) getting diluted.”
Viom has around 38,500 towers and 95,000 tenancies. The company plans to roll out 20,000-25,000 additional towers in the next two years and is targeting a tenancy ratio of 2.5 times. GTL Infrastructure, after acquiring Aircel’s towers, had 32,650 towers and 41,700 tenants as on March 31, 2011. But it also has a debt of Rs 10,000 crore on its books. A merger will ensure scale and higher tenancies.
Indus Towers, a joint venture among Bharti Airtel, Vodafone Essar and Idea Cellular, is the market leader with about 110,000 towers.
GTL and GTL Infrastructure have roped in SBI Capital Markets for advice on business and financial obligations in an effort to dispel investor concerns after the recent fall in the stocks.
Since June 17, GTL and GTL Infrastructure stocks have seen panic selling, resulting in a fall of 61 per cent and a loss of Rs 3,743 crore in their combined market capitalisation.
But sources said both saw value in consolidating at a time the industry was suffering from lack of funds, stretched balance sheets and a fall in revenues. The 2G scam has also led to a fall in capital expenditure, muted growth and lower demand across the telecom space, which is turn is severely impacting the infrastructure player.
Last month, Viom opted out of a race to acquire the tower arm of Anil Ambani-promoted Reliance Communications following differences over valuation. Analysts said valuation could be the biggest stumbling block in this deal as well.
At current market price, GTL’s valuation is way below Viom’s self-valuation, and a merger may bring down Viom’s value significantly, warn analysts. The other challenge will be who will control the combined operations. “In Viom, already there are the Tatas, the Kanorias and private equity investors such as SBI Macquarie, IDFC and Oman Investment Fund. Even though, on paper, consolidation seems logical, at what valuation the deal is done is a challenge. Also, a merger may lead to Tirodkar having to give up control as his stake may be diluted significantly,” said a banker aware of the current negotiations.
