2nd UPDATE:Reliance Communications Agrees To Sell Tower Assets To GTL Infrastructure

27th Jun 2010 17:58

(Adds details on deal, background) By Kenan Machado Of DOW JONES NEWSWIRES MUMBAI (Dow Jones)--Reliance Communications Ltd. (532712.BY) Sunday said it has agreed to sell the tower assets of its unit, Reliance Infratel, to Indian telecom infrastructure company GTL Infrastructure Ltd. (532775.BY) for an undisclosed sum, as it seeks to reduce its debt and fund expansion. Reliance Communications and GTL Infrastructure said the deal will create a combined entity with over 80,000 towers and an enterprise value of over INR500 billion ($11 billion). This is the first stake sale in any Reliance ADA Group company--headed by billionaire Anil Ambani -- which until recently had been stifled by a first right of refusal clause under a 2005 family agreement between Anil and older brother Mukesh Ambani. The pact was scrapped recently. The deal seeks to establish an independent tower firm which could attract other competing telecom operators to lease space as demand for such infrastructure surges in the world's fastest growing telecom market. GTL Infrastructure will infuse cash to Reliance Communications and pay in stock to shareholders under a share swap ratio and cash value to be finalized at a later stage, the two companies added. The deal will help Reliance Communications reduce its current debt by about INR180 billion, a person familiar with the development said. He declined to be named. Reliance Communications has around $6.2 billion debt, including the $1.8 billion it raised to pay for the third generation radio bandwidth it recently won via a government run auction. The company also needs cash to fund its expansion of services. India's intensely competitive telecom market has forced operators to offer voice calls for less than a U.S. cent a minute. These low tariffs have in turn proved to be a drag on the margins of telecom operators, some of whom, including Reliance Communications, have had to raise debt to buy third-generation radio wave licenses in a recently-concluded government auction. After the deal Anil Ambani will own a 26% stake in the combined entity. Manoj Tirodkar, founder and chairman of GTL Infrastructure, will own close to 30%. The rest is likely to be owned by the shareholders of Reliance Communications and GTL Infrastructure, another person familiar with the developments said. He also declined to be named. The debt reduction through the stake sale in Reliance Infratel and the cash infusion into Reliance Communications, is likely boost the value of the firm, as it looks to shed about 26% stake in itself to strategic or private-equity investors, say analysts. The Group has been looking to sell significant stakes in its telecommunications assets. The Reliance Communications board has already also approved a 26% stake sale in the company. "The proposal will lead to substantial unlocking of value, through cash infusion to RCOM (Reliance Communications), leading to substantial reduction of its consolidated gross debt and improved leverage ratios, contributing to enhanced financial flexibility," Reliance Communications said it a statement. Currently, Indus Towers Ltd.--a joint venture between telecom operators Bharti Airtel Ltd. (532454.BY), the Indian unit of Vodafone Group PLC (VOD, VOD.LN), and Idea Cellular Ltd. (532822.BY) -- which has about 110,000 towers is the largest telecom tower company in India. The merged entity will have over 125,000 tenants from over 10 telecom operators including Reliance Communications, and the Indian telecom ventures of Vodafone Group PLC, Telenor ASA (TEL.OS), NTT DoCoMo Inc. (9437.TO) and UAE telecom firm Emirates Telecommunications Corp., better known as Etisalat, they said. Earlier in the year, GTL Infrastructure bought Aircel Ltd.'s 17,500 towers for INR84 billion ($1.85 billion), propelling it to the top of the list of independent tower companies in India. Reliance Communications will retain the optic fiber business in Reliance Infratel. (Rumman Ahmed in Bangalore contributed to the story) -By Kenan Machado, Dow Jones Newswires; +91 22 6145 6107; [email protected] (END) Dow Jones Newswires June 27, 2010 12:58 ET (16:58 GMT)