American private equity firm Providence—which specialises in telecom, media and technology investments—is believed to be swapping its holding in Aditya Birla Telecom Ltd (ABTL) with a stake in Indus Towers Ltd, a person privy to the development told VCCircle.
Indus Towers, the country’s largest telecom tower firm, is a three-way joint venture among Bharti Infratel Ltd (42%), Vodafone India (42%) and ABTL (16%). ABTL is a wholly owned subsidiary of Aditya Birla Group’s telecom firm, Idea Cellular Ltd.
Providence Equity Partners, which invests in India through its global funds, owns compulsory convertible preference shares of ABTL that give it beneficial stake of around 30% in the privately held firm. The proposed deal would be essentially a cashless stock swap for Providence.
Indus is an independently managed company offering passive infrastructure services to all telecom operators and broadband service providers. It operates in 15 of India’s 22 telecom service areas including Delhi, Mumbai, Kolkata and states in southern, northern and western regions.
As of 31 March 2016, it operated 119,881 towers with 270,006 co-locations.
Indus Towers CEO Bimal Dayal declined to comment while the Aditya Birla Group did not immediately respond to a request for comment. Providence Private Equity India head Biswajit Subramanium could not be contacted despite several phone calls.
Earlier this month, The Economic Times had reported citing unnamed persons that the Aditya Birla Group was looking at restructuring its telecom towers business that might involve Providence swapping shares of ABTL with a 5% stake in Indus Towers.
It said the group was looking to sell a large stake in its captive telecom tower business under Idea Cellular and could merge that arm with ABTL and then dilute an equity stake in the merged entity.
Valuation, book profit/loss; Idea Cellular
Given recent deals in the telecom tower space and the roster of towers under Indus, a 4.8% stake for Providence would be worth around Rs 3,000 crore ($450 million), according to VCCircle estimates.
In 2008-09, Providence had invested around Rs 2,100 crore ($534 million) to buy the compulsory convertible preference shares of ABTL, according to VCCEdge, the data research platform of News Corp VCCircle. While it would be sitting on almost 50% upside on its investment in local currency terms, it would still face a book loss in dollar terms due to the sharp depreciation of the Indian currency against the greenback.
Providence Equity Partners had originally committed $640 million (Rs 2,560 crore then) to pick up a 20% stake in ABTL along with co-investors. But this was scaled down as the co-investors did not get regulatory approval for the transaction.
The delay in approval to Providence helped the PE firm as the slide in the rupee value since it was originally announced and the time when it was executed saw Providence pay lesser in dollar terms while ABTL got what it was to get in rupee terms.
This was Providence’s second deal in India and was an extension to its bet on Aditya Birla Group. In 2006, it had bought about 15% of Idea Cellular for around Rs 1,800 crore ($400 million then). The telecom operator went through an IPO and Providence's stake got diluted later due to fresh equity issues.
It has been trimming its stake in Idea Cellular. Earlier this year, it sold around half of its remaining stake in its decade-old investment. It has made a modest profit in that investment given the long holding period.
With the latest deal, it would further disengage its direct exposure to Aditya Birla Group. Its other Indian portfolio firms include cable and satellite television service provider Hathway Cable and Datacom Ltd, home shopping firm Star CJ Network India and digital entertainment solutions provider UFO Moviez India. Last year it sold a small stake in UFO Moviez during the company’s IPO.
Telecom towers: hotbed of big deals
Valuations in the telecom tower business have moderated over the past decade when the sector saw a clutch of PE firms strike big deals in India. Over the past year there have been some big-ticket deals in the sector.
On 14 October, Reliance Communications Ltd signed a non-binding term sheet to sell a majority stake in its tower assets housed under Reliance Infratel Ltd to Canada’s Brookfield Asset Management Inc for Rs 11,000 crore ($1.65 billion) to pare debt. If the deal materialises it would be the second-biggest private equity transaction ever in the country, behind Temasek’s $2 billion investment in Bharti Telecom in 2007.
A year ago, in another large tower deal, NYSE-listed American Tower Corporation bought a 51% stake in telecom tower firm Viom Networks Ltd for Rs 7,635 crore ($1.2 billion) in cash. Viom, co-promoted by Tata Group's privately held communications arm Tata Teleservices Ltd and the Kanoria family of SREI Infrastructure Finance Ltd, counted several private investors, many of whom had backed the Kanorias in their tower firm Quippo Telecom Infrastructure.
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