There was increased financial activity in the Indian telecom sector in 2015, with the easing of the regulatory environment and growth in the data markets. The past year witnessed significant equity deals, including some key mergers as a means of tapping the growing broadband opportunity. For instance, Airtel invested in several broadband ventures, including OneWeb consortium, YTS Solutions and Augere Wireless. Reliance Communications (RCOM) and Sistema Shyam TeleServices Limited (SSTL) signed definitive agreements for a merger to position themselves better in light of the competition anticipated in the 3G and 4G spaces. The telecom infrastructure space witnessed the largest acquisition in the past few years as the American Tower Corporation (ATC) acquired a majority stake in Viom Networks to become the third-largest tower company in the country.
On the debt side, heavy expenses incurred on spectrum payments and 3G and 4G infrastructure roll-outs pushed various operators to procure low-interest foreign debt. Apart from this, the past year witnessed a few bond issues aimed at funding capex for setting up network infrastructure. Meanwhile, the monetisation of tower assets continued to be a key strategy in paring the debt of operators. Airtel sold several of its tower assets across Africa while RCOM is set to sell its tower unit, Reliance Infratel.
tele.net takes stock of the key deals that took place in the equity and debt spaces in the Indian telecom sector over the past year…
In January 2015, Spectranet, a cable and wireless broadband service provider, acquired the retail internet business of optic fibre cable manufacturer Sterlite Technologies. However, Sterlite still has ownership of its core business of laying cables for telecom services. With this acquisition, Sterlite, which was offering retail internet services to around 150 customers, has transferred its business to Spectranet as proof of concept.
In the same month, RCOM secured the second instalment of Rs 6.5 billion from its promoter entity, Telecom Infrastructure Finance Private Limited (TIFPL), in consideration of the preferential allotment of 86.7 million warrants worth Rs 13 billion. Consequently, the promoter’s holding in the company increased from 58.25 per cent to 59.7 per cent. In August 2014, RCOM had received Rs 6.5 billion from TIFPL, which was 50 per cent of the issue price of the warrants.
In February 2015, China-based Ant Financial Services Group, a part of Alibaba Group Holding Limited, acquired a 25 per cent stake in One97 Communications. The strategic partnership with One97 Communications supports the growth of the group’s mobile payment and e-commerce platform, Alipay, in India. The proceeds from the stake offload will be used by One97 Communications to expand the user base of its e-wallet service Paytm.
In March 2015, The EuroPacific Growth Fund bought over 30.15 million of Idea Cellular’s shares for Rs 5.34 billion through an open market transaction. The shares were bought at an average price of Rs 178 per share. In September 2014, EuroPacific purchased 18.9 million of the company’s shares. Meanwhile, the First Street Asia Pacific Fund offloaded 21.3 million of Idea Cellular’s shares for Rs 3.8 billion.
In April 2015, ATC acquired the telecom tower assets of infrastructure company KEC International Limited for Rs 810 million. The latter owned 381 towers across the states of Chhattisgarh, Meghalaya and Mizoram. The deal, which is the fourth acquisition made by ATC in India, has taken the total number of towers owned by the company to 13,000.
In June 2015, Bharti Enterprises, the parent company of Bharti Airtel, acquired a minority stake in OneWeb, a global consortium initiative aimed at providing affordable internet access. Bharti Enterprises will be able to leverage its investment in the initiative by becoming a preferred distributor of these services through its operations in the Indian and African markets. OneWeb aims to build a communications network with an initial constellation of 648 Low Earth Orbit satellites, which will provide connectivity around the world. The OneWeb user terminals will contain embedded long term evolution (LTE), 3G, 2G and Wi-Fi access capabilities, which could extend the reach of operators.
In July 2015, the India Value Fund III, which is owned by private equity (PE) firm Indian Value Fund Advisors (IVFA), signed a definitive agreement to sell the majority of its 70 per cent stake in high speed broadband service provider Atria Convergence Technologies (ACT) to Argan (Mauritius). Argan is a special purpose vehicle (SPV) of Indium V, which, in turn, is owned by IVFA. In addition, TA Associates acquired new equity shares in ACT. Following the completion of the stake sale and the issuance of new shares, Argan and TA Associates will own a total of 95 per cent stake in ACT.
In August 2015, Bharti Airtel acquired mobile payments solutions company YTS Solutions. The acquisition has allowed Airtel to integrate the payments and remittance businesses of YTS Solutions with Airtel M Commerce Services Limited (AMSL), a wholly owned subsidiary of Bharti Airtel. It has also helped expand the portfolio of Bharti Airtel’s mobile wallet, Airtel Money. In January 2015, AMSL had applied to the Reserve Bank of India for a payments bank licence.
During the past year, the monetisation of tower assets continued to be a key strategy in paring the debt of operators.
In October 2015, ATC acquired a 51 per cent stake in Viom Networks for Rs 76.35 billion. ATC purchased Tata Teleservices Limited’s (TTSL) 19 per cent stake, Srei Infrastructure’s 18.5 per cent holding, as well as the stakes of some minority shareholders. The remaining stake will now be held by TTSL (35 per cent), Macquarie SBI Infrastructure Investments, SBI Macquarie Infrastructure Trust and IDFC Private Equity Fund III. The combined entity will have a portfolio of 56,000 towers, including 42,200 towers owned by Viom.
In November 2015, RCOM entered into a merger agreement with Russia-based Sistema JSFC for the latter’s Indian telecom business, SSTL. Following the transaction, Sistema will own a 10 per cent stake in RCOM, while the promoter shareholding in RCOM will be reduced to 54 per cent. SSTL is planning to pay off its existing debt prior to the completion of the deal. The acquisition will be by stock and the takeover of SSTL’s spectrum will be in instalments of Rs 3.92 billion per year over the next 10 years. The deal was reportedly valued at Rs 45 billion and is likely to be concluded by the quarter ending September 2016, subject to approval by Indian regulatory and judicial authorities.
In December 2015, Bharti Airtel acquired 100 per cent equity stake in Augere Wireless Broadband India. With this, the latter became a wholly owned subsidiary of Bharti Airtel. The deal was valued at Rs 1.5 billion, and allows Airtel to offer 4G services in nine circles by making use of Augere’s 20 MHz broadband wireless access (BWA) spectrum in the Madhya Pradesh and Chhattisgarh circle. Augere had bought the BWA spectrum in 2010, for an estimated amount of Rs 1.25 million; however, it later decided to shut down its India operations citing regulatory uncertainties related to the spectrum auction.
Debt and capex financing
In April 2015, RCOM raised $300 million through a Regulation S (Reg S) bond issue. The tenor of the bonds is five and a half years, and the coupon rate is 6.5 per cent. The funds raised are likely to be used for upfront spectrum payments and capital expenditure. The bonds have been rated Ba3 by Moody’s and BB- by Fitch Ratings. Standard Chartered Bank and DBS Bank were the arrangers for the issue.
In May 2015, Reliance Jio Infocomm Limited (RJIL) secured a $750 million (Rs 48 billion) syndicate loan backed by the Korea Trade Insurance Corporation. The funds will be used primarily to finance the equipment and services procured from Samsung Electronics and Ace Technologies Corporation for 4G infrastructure roll-out. The loan facility has a tenor of 12 years – a 10-year repayment period and a two-year moratorium. RJIL has already invested around Rs 860 billion in the roll-out of 4G networks. It currently holds pan-Indian spectrum in the 2300 MHz band, and is likely to launch its 4G services soon.
In the same month, Bharti Airtel received bilateral financing commitments of up to $2.5 billion from the China Development Bank and the Industrial and Commercial Bank of China, with an average maturity of nine years. The operator is expected to utilise these funds for expanding its data networks. The China Development Bank has committed a credit line of $2 billion, while the Industrial and Commercial Bank of China has offered $500 million. The transactions were subject to regulatory approvals, including clearance from RBI .
In June 2015, Vodafone India raised Rs 88 billion for refinancing its corporate debt. The company raised Rs 75 billion from the sale of rupee-denominated bonds through its three subsidiaries in the Indian capital market. The bonds had a maturity period of five years and one month, and a coupon rate of 10.25 per cent. While Vodafone Spacetel raised Rs 35 billion, Vodafone Essar Cellular and Vodafone South raised Rs 25 billion and Rs 15 billion respectively. The bond issue was managed by HSBC Holdings and Standard Chartered Bank. The remaining Rs 13 billion was raised through a rights issue on June 9, 2015. In July 2015, Bharti Airtel completed the sale of mobile phone towers in five African countries — Nigeria, Uganda, Ghana, Rwanda and Congo Brazzaville — for over $1.3 billion (Rs 83.2 billion). The funds from the sale of towers are likely to be used to reduce the company’s debt. In Nigeria, Airtel sold its 4,700 towers to ATC. It also stated that its agreements with Helios Towers Africa for the sale of towers in Tanzania and Chad had lapsed in June 2015. However, transactions in six other countries in Africa are still in progress.
During the past year, the monetization of tower assets continued to be a key strategy in
paring the debt of operators.
In July 2015, Tata Communications started the process of selling its data centre business for over $500 million to pare its debt. The company reportedly hired Japanese bank Nomura to find prospective buyers for its data centre business across 44 locations, in India and abroad. Besides India, the company has data centres in countries such as the US, the UK and Singapore, with over 1 million square feet of co-location space, offering managed hosting and storage services.
In September 2015, RJIL raised Rs 35 billion by issuing 35,000 secured redeemable non-convertible debentures with a face value of Rs 1 million each through a private placement. The redemption date for the five-year debentures would be January 21, 2020 and for the 10-year debentures would be January 21, 2025.
In October 2015, GTL Limited decided to sell its energy management business to UK-based Intelligent Energy’s subsidiary Essential Energy for around Rs 8.5 billion. The deal will be executed through a slump sale, the proceeds of which will be used by GTL to pay off its lenders. The acquisition is also expected to help Essential Energy establish itself in the Indian distributed power generation segment, starting with the telecom infrastructure market.
In December 2015, RCOM signed an agreement with PE firms TPG and Tillman Global for the sale of its telecom tower arm, Reliance Infratel. The deal, subject to regulatory and other approvals, was reportedly valued at Rs 300 billion. Reliance Infratel currently has around 44,000 towers and a 100,000 km optical fibre network, which are expected to be sold at Rs 220 billion and Rs 80 billion respectively. RCOM will continue to be the anchor tenant for its telecom towers.
In September 2015, the Foreign Investment Promotion Board (FIPB) approved Russia-based Sistema’s request to increase its foreign shareholding in SSTL to over 74 per cent. At present, Sistema owns 56.68 per cent stake in SSTL while the Russian government and other foreign entities hold 17.14 per cent and 0.13 per cent stakes respectively. In September 2014, the FIPB had rejected SSTL’s request for an increase in foreign ownership due to confusion regarding the mode of investment proposed by Sistema.
During the same month, the FIPB granted permission to New Call Telecom to acquire public Wi-Fi provider Ozone Networks. Ozone Networks has the largest number of public and private Wi-Fi hotspots in India. The move will help New Call Telecom to focus on realising the potential of public Wi-Fi by bringing it to new cities, as well as rolling it out for rural communities.