RCom signs binding agreement with Brookfield for sale of tower business

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Reliance Communications Ltd (RCom) on Wednesday said it has signed a binding agreement with Brookfield Infrastructure Partners to sell its tower business for an upfront payment of Rs11,000 crore in cash on completion of the transaction, RCom said in a statement.

Brookfield Infrastructure is expected to give class B non-voting shares to RCom in the newly acquired business.

RCom claims the deal to be the largest investment by a foreign investor in the Indian infrastructure business as RCom’s telecom towers will be demerged into a separate company that will be wholly owned and managed by Brookfield Infrastructure.

“RCOM will enjoy certain information and other rights, but will not be involved directly or indirectly in the management and operations of the new Company. RCOM and Reliance Jio will continue as major long term tenants of the new tower company, along with other existing third party telecom operators,” the company added in its statement.

Anil Ambani-controlled RCom is selling assets to reduce debt and aims to turn net debt-free by 2017. It is the most indebted telecom service provider in India, with debt of around Rs42,000 crore.

“This deal is helpful for the company and the industry as RCom reduces its debt and the industry moves towards economies of scale. The market is in a phase of consolidation and moving to greater economic efficiency,” said Amresh Nandan, research director at Gartner Inc.

In January, RCom signed a definitive agreement to buy Sistema Shyam Teleservices Ltd (SSTL) in a deal valued at Rs4,500 crore and payments towards spectrum allotted to SSTL. Following the deal, SSTL acquired a 10% stake in RCom worth Rs2,082 crore.

RCom is also merging its wireless business with smaller rival Aircel and has said the deal will help reduce its leverage as it transfers part of its debt to the new venture. RCom also signed a spectrum sharing and trading agreement in April with Reliance Jio Infocomm Ltd—the telecom unit of Mukesh Ambani’s Reliance Industries Ltd—for the 850Mhz spectrum band.

RCom said on Wednesday that the proceeds from upfront payment for the tower unit and the money from the Aircel deal will reduce its debt by 60% to about Rs17,000 crore. The firm will hold a 50% stake in the wireless business with Aircel and 49% in non-voting shares in the tower business.

RCom is likely to further monetize its real estate to bring down debt by another Rs5,000 crore. However, it will retain business interests in other Indian enterprise business, data centres, optic fibres, global submarine cables, etc.

“RCom also does not require any major spend for spectrum or capital expenditure in the future, as post the merger with SSTL and Aircel being completed, and with spectrum sharing already implemented with R-Jio, it has extensive 2G, 3G and 4G networks already operational across the country. The Brookfield deal for the tower business brings to a culmination RCom’s four pronged strategy to future-safe its business,” an official at RCom said on condition of anonymity.

The sale of its tower business is subject to approval from shareholders, lenders and other regulatory compliances. RCom owns an equity stake of nearly 91% in Reliance Infratel, with the rest held by a clutch of investors including New Silk Route, George Soros’s Quantum and Galleon, which had together invested around $287 million in 2007