Fitch Ratings on Thursday said that the merger of Bharti Infratel with Indus Towers reflects fierce price competition in the Indian telecom market, which has created pressure for consolidation and on incumbents to sell assets to raise funds.
Fitch Ratings said that it expects some of the largest shareholders in the combined tower entity to sell their stakes, or divest them entirely, following the merger. "The board after due deliberations approved the proposal for merger of Indus Towers into Bharti Infratel", said Bharti Airtel in statement to the exchanges. "It has sold down 18.5% of Infratel for around USD1.8 billion over the last 24 months", Nitin Soni, Director - Corporates at Fitch Ratings said in a statement.
The combined company is expected to have an enterprise value of around $10.8 billion, Airtel said in a statement. The new announcement said the closure is subject to approval from the concerned authorities and may happen before March, 2019.
The merged entity, which will be called Indus Towers Ltd, will remain listed.
The new Indus Towers board will have 11 members - 3 each from Bharti Airtel and Vodafone, 1 from KKR or Canada Pension Plan Investment Board as well as 4 independent members. Idea raised another $1 billion through a combination of equity infusion by its parent and a private equity placement.
It was reported in October 2017 that Infratel was looking to take over Indus via acquisition in the form of "a leveraged buyout that will largely be funded out of the reserves and cash flow of Indus Towers".
On BSE, Bharti Airtel shares were trading at Rs 421.40 per share, up 3.77 per cent at 1.25pm, while Bharti Infratel shares were trading at Rs 327.30 per share, down 0.62 per cent at 1.27pm.
Bharti Infratel entered a merger with Indus Towers to create a pan-India tower company, with over 163,000 towers, operating across all 22 telecom service areas in India. "The merged entity will benefit from some economies of scale and will not face cash leakage through the dividend distribution tax, which is now paid when Indus distributes dividends".
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In case Idea and Providence decide to continue to stay invested, Bharti Airtel would have a shareholding of 33.8 per cent in the combined entity.
Idea group has the option to sell its 11.15 per cent in Indus Towers, the proceeds of which can be used for the merger of Vodafone India and Idea Group.
Naveen Kulkarni, telecom analyst at PhillipCapital, said: "If Bharti and Vodafone completely exit the tower business, the Indus-Infratel merged entity would become a truly independent tower company, commanding higher valuations".
Vodafone will get 783.1 million shares in the net entity in exchange for its 42 per cent stake in Indus Towers.
KKR and CPPIB past year bought more than 10 percent of Bharti Infratel.
Shareholders of Indus Towers - Bharti Infratel, Vodafone, Idea and private equity firm Providence - will receive 1,565 shares of Bharti Infratel for every share held. "The Board chose to engage with the potential investors for evaluating a strategic stake sale post the completion o" merger".
Bharti Airtel's shareholding will be diluted from 53.5 per cent in Bharti Infratel now to 37.2 per cent in the combined company.
The deal comes amid a fierce price war in the Indian telecom market that has spurred a rush of M&A activity, including a planned merger of Vodafone's India and Idea that threatens Bharti Airtel's position as India's biggest phone carrier.