Bharti Infratel-Indus Merger To Save Rs 560 Crore Annually

Bharti Infratel Ltd., which reported its earnings yesterday, said in the conference call today that a potential merger between Bharti Infratel and Indus Towers Ltd., will help the company save close to Rs 560 crore on account of dividend distribution tax and other corporate expenditures.

Economies of scale could also bring down the combined entity's capital expenditure, the management added. The Bharti Infratel board said on Oct. 30, 2017 that they are looking to buy stake in Indus Towers in one or more tranches with the aim to make it a subsidiary or wholly owned unit of the company.

Earlier, Bloomberg had reported that a consortium led by KKR & Co. is looking to combine Indus Towers and Bharti Infratel. The investors plan to first boost their stake in Bharti Infratel, and then make an offer for the combined 53.15 percent stake in Indus Towers owned by Vodafone India Ltd. (42 percent) and Idea Cellular Ltd. (11.15 percent), the report said quoting people familiar with the development.

However, the saving on dividend distribution tax will apply only if the two companies merge. If Indus Towers is converted into a subsidiary of Bharti Infratel, any dividend it pays to the parent will still be liable to tax as per tax law.

Indus Towers is currently owned by Bharti Infratel (42 percent), Vodafone Plc (42 percent), Idea Cellular Ltd. (11.15 percent) and by private equity investor Providence (4.85 percent), while in Bharti Infratel, a listed entity, Bharti Airtel (53.51 percent) owns the majority stake.

Merging both the entities will create world's biggest telecom tower company, replacing the American Tower Corp. The combined entity would have more than 1,63,000 towers, ahead of American Tower Corp.'s 1,50,000 across four regions.

The three telecom service providers – Bharti Airtel, Vodafone India Ltd. and Idea Cellular Ltd., were looking to cut their stake in tower business to fund their core operations. Bharti Airtel has so far sold 18.5 percent stake in its tower arm Bharti Infratel in different tranches for close to Rs 12,000 crore.

Earlier this year, Vodafone India and Idea Cellular also sold their own tower assets to ATC India for close to Rs 7,850 crore. Now if Indus Towers gets merged with Infratel then it will provide, Idea Cellular and Vodafone group an exit from Indus Towers.