Bharti Airtel Approves Proposal To Merge Indus Towers With Bharti Infratel

The merger between Indus Tower and Bharti Infratel has finally come through. 

Communications dishes and devices sit on a telecom tower. (Photographer: Waldo Swiegers/Bloomberg)
Communications dishes and devices sit on a telecom tower. (Photographer: Waldo Swiegers/Bloomberg)

Bharti Airtel Ltd. approved merger of its listed tower arm with privately held Indus Towers Ltd. to create the largest telecom infrastructure company outside China.

The combined entity between Bharti Infratel Ltd. and Indus Towers will have more than a third of the market with 163,000 towers, Bharti Airtel said in an exchange filing. Bharti Infratel agreed to offer 1,565 shares for one share in Indus Towers.

Bharti Infratel, and Vodafone India Ltd. own 42 percent each in Indus Towers, while Idea Cellular Ltd. holds 11.15 percent. The remaining 4.85 percent is held by U.S.-based private equity firm Providence.

The proposed merger will help unlock value for India’s top three wireless carriers at a time the tariff war unleashed by Reliance Jio Infocomm Ltd. has hurt earnings of their core business and driven consolidation in the sector. Vodafone and Idea Cellular are already in the final stages of their merger. The carriers have also been selling stakes in tower businesses to pare debt.

Bharti Infratel-Indus Merger To Save Rs 560 Crore Annually

Valuation Picture

The deal pegs the enterprise value of Indus Towers at $10.8 billion (about Rs 70,000 crore), given that its revenue is three times the standalone sales of Bharti Infratel. The 1,565:1 merger ratio in favour of Indus Towers is in line with Bharti Infratel’s valuations based on its operating income, according to BloombergQuint’s calculations.

The merger will help the company save close to Rs 560 crore on account of dividend distribution of tax and other corporate expenditures, Bharti Infratel’s management said in a conference call yesterday. Economies of scale could also bring down the combined entity’s capital expenditure.

The new company will also have lower costs. The tenancy ratio – the number of tenants, or operators that have put up their antennae on the towers – for the combined entity will be close to 2.25 times, higher than the industry average of nearly 2 times.

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Ownership Of Merged Entity

  • Idea Cellular has the option to sell its 11.15 percent stake in Indus Towers. It also has the option to get 7.1 percent stake in the new entity.
  • Providence will receive new shares equivalent to 1.1 percent stake in Indus Towers. The remaining 3.35 percent can either be sold to Bharti Infratel for cash or be converted into shares in the new entity.
  • Vodafone will get 783.1 million shares in the net entity in exchange for its 42 percent stake in Indus Towers. This is on the basis that the other parties sell their prior holdings in Indus Towers.
  • Bharti Airtel’s shareholding will be diluted from 53.5 percent to 37.2 percent.

India Needs More Towers

The merger plan comes when India needs more towers as existing infrastructure is inadequate to manage growing traffic, leading to frequent call drops.

There’s still scope for growth, Nitin Soni, director for Asian corporates at Fitch Ratings, said. “We know that there are frequent call drops and data traffic is growing really well. We need to continue to add more towers in the industry to address this significant growth in data traffic.”