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GTL Infrastructure and the tower subsidiary of Reliance Communications (RCOM) will convert around 6,000 crore of loans from promoters into equity and issue fresh shares worth $1 billion ( 4,700 crore) to investors to create a combined tower entity with a manageable level of debt, two people familiar with developments told ET. Reliance Communications is in talks with GTL Infrastructure to merge its telecom towers into the listed, Manoj Tiridkar-controlled tower company.
The transaction, which is likely to be announced in a few weeks, is somewhat different from the one being discussed in June, as the two companies have sought to bring down the debt on the books of the merged entity. In interactions with the media after the deal was announced in June, RCOM had talked about transferring round 15,000 crore of its debt to the new tower company but many analysts said this will strain its finances because GTL Infrastructure had closed an 8,000 crore-acquisition of Aircel's towers earlier this year by taking on nearly 4,500 crore of debt.
Since then, the two companies have sought to tweak the deal to cut the debt the combined entity will have to bear. To achieve this, GTL Infra that has around 2,000 crore of promoter debt, will convert this to equity prior to the merger, the people said. Reliance Communications' promoters for their part will also convert loans worth 3,700-3,900 crore to equity in their tower subsidiary. This stake will possibly be held by Reliance Communications, one of the two said.
The entities will then be merged to form a company that will retain the name GTL Infrastructure, with around 84,000 telecom towers, with an average of 1.5 slots rented out to telecom operators on each tower. The net debt of the company will be close to 17,000 crore at this stage.
The Global group spokesman said he did not wish to comment. "Upon closure of the deal appropriate details will be shared through notification to the exchanges, thus at this stage we do not wish to comment on this matter." An email to RCOM went unanswered.
The value of RCOM's towers is estimated at 28,000-30,000 crore while GTL Infrastructure is valued at 9,000-10,000 crore. As a result, RCOM's share in the combined entity will be higher. Global group will shell out 3,000 crore to increase its stake in the company. The cash will go to the owner of the stake, either RCOM or its promoters.
To further reduce debt, GTL Infrastructure plans to induct a strategic or private equity investor. The company plans to sell between 12% and 15% stake in the combined entity for $1 billion. The new investor will get freshly issued shares, diluting stake of all shareholders equally. At this point,
GTL Infrastructure will have between
12,000-13,000 crore of debt resulting in a debt to EBITDA (earnings before interest, tax, depreciation, and amortisation) ratio of four-to-five times. Globally, telecom tower companies have a debt to EBITDA ratio of around six.
GTL Infrastructure has first right to provide Aircel, a cellular operator majority owned by Malaysia's Maxis, a place on its tower for the next 20,000 slots required by the telecom operator.
As part of the RCOM deal, it will get the first right to provide the next 40,000 to 50,000 slots to RCOM – India's second largest telecom operator by number of subscribers. As a result, within a year, the average number of tenants on each tower will be 1.8, the first person said.
The company formed by the merger is likely to have revenues of just under than $1 billion and an EBITDA margin of around 65%, he said.
The transaction, which is likely to be announced in a few weeks, is somewhat different from the one being discussed in June, as the two companies have sought to bring down the debt on the books of the merged entity. In interactions with the media after the deal was announced in June, RCOM had talked about transferring round 15,000 crore of its debt to the new tower company but many analysts said this will strain its finances because GTL Infrastructure had closed an 8,000 crore-acquisition of Aircel's towers earlier this year by taking on nearly 4,500 crore of debt.
Since then, the two companies have sought to tweak the deal to cut the debt the combined entity will have to bear. To achieve this, GTL Infra that has around 2,000 crore of promoter debt, will convert this to equity prior to the merger, the people said. Reliance Communications' promoters for their part will also convert loans worth 3,700-3,900 crore to equity in their tower subsidiary. This stake will possibly be held by Reliance Communications, one of the two said.
The entities will then be merged to form a company that will retain the name GTL Infrastructure, with around 84,000 telecom towers, with an average of 1.5 slots rented out to telecom operators on each tower. The net debt of the company will be close to 17,000 crore at this stage.
The Global group spokesman said he did not wish to comment. "Upon closure of the deal appropriate details will be shared through notification to the exchanges, thus at this stage we do not wish to comment on this matter." An email to RCOM went unanswered.
The value of RCOM's towers is estimated at 28,000-30,000 crore while GTL Infrastructure is valued at 9,000-10,000 crore. As a result, RCOM's share in the combined entity will be higher. Global group will shell out 3,000 crore to increase its stake in the company. The cash will go to the owner of the stake, either RCOM or its promoters.
To further reduce debt, GTL Infrastructure plans to induct a strategic or private equity investor. The company plans to sell between 12% and 15% stake in the combined entity for $1 billion. The new investor will get freshly issued shares, diluting stake of all shareholders equally. At this point,
GTL Infrastructure will have between
12,000-13,000 crore of debt resulting in a debt to EBITDA (earnings before interest, tax, depreciation, and amortisation) ratio of four-to-five times. Globally, telecom tower companies have a debt to EBITDA ratio of around six.
GTL Infrastructure has first right to provide Aircel, a cellular operator majority owned by Malaysia's Maxis, a place on its tower for the next 20,000 slots required by the telecom operator.
As part of the RCOM deal, it will get the first right to provide the next 40,000 to 50,000 slots to RCOM – India's second largest telecom operator by number of subscribers. As a result, within a year, the average number of tenants on each tower will be 1.8, the first person said.
The company formed by the merger is likely to have revenues of just under than $1 billion and an EBITDA margin of around 65%, he said.
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