Bharti Infratel, Indus Towers May Invest Rs 3,500 Crore Capex Ahead Of Merger

Bharti Infratel Ltd. and Indus Towers are likely to invest Rs 3,500 crore in operations as capital expenditure for 2018-19 as they continue to operate on a ‘business-as-usual' mode till their merger happens before the end of the financial year, sources said.

The two companies, last month, announced a merger deal that will create a $14.6-billion firm with the world's second-largest number of mobile masts. The merged entity will have, in its fold, more than 1,63,000 towers across India—the largest after China Tower.

The transaction is subject to regulatory and other approvals which the two companies will now pursue, starting with the Competition Commission of India and thereafter the Securities and Exchange Board of India, National Company Law Tribunal and the Department of Telecom (FDI approval). The companies said the deal was expected to close before the end of 2018-19.

A source privy to the development said the annual financial planning continues on course for both the companies as it is ‘business-as-usual', and that Infratel's capex is expected to be in the ballpark range of Rs 1,200 crore in 2018-19.

Indus Towers—where Infratel holds a 42 percent stake—is likely to infuse Rs 2,300-2,500 crore as capex this year, said an official requesting anonymity.

Indus Towers is jointly owned by Bharti Infratel (42 percent holding), Vodafone (42 percent), Idea Group (11.15 percent) and Providence (4.85 percent).

The amount of investment is similar to last year's levels and will go into “new towers, tenancies and replacement capital”, the official said, adding the investments are being funded from internal accruals of the two tower firms.

A Bharti spokesperson declined to comment on a detailed e-mailed query sent to the company. Indus Towers did not wish to comment.

“The capex amount will also be used for replacement of batteries, DG (diesel generators), power equipment...As the tenancies increase, the two companies will continue to increase their capacities of mobile towers ahead of their proposed merger,” said the source.

Last month, the two entities announced that, “Indus Towers will be merged with and into Bharti Infratel through a scheme of arrangement.” The merged entity, which will be called Indus Towers, will remain listed.

Bharti Airtel Ltd., which owns 53.5 percent in Bharti Infratel, will get a 33.8-37.2 percent stake in the combined entity. Its final shareholding depends on what Aditya Birla Group's Idea and Providence do with their minority shareholding in Indus Towers.

Vodafone India will get between 26.7 percent and 29.4 percent of the Indus-Bharti Infratel combine. The merger will help unlock value for the companies which are locked in a tariff war unleashed by newcomer Reliance Jio Infocomm Ltd. that has hurt earnings and triggered consolidation in the sector. Vodafone and Idea Cellular Ltd. are already in the final stages to merge their mobile operations.

Last month, Airtel separately stated that it plans to engage with potential investors to evaluate a stake sale in the combined tower company, which will have an equity value of Rs 96,500 crore ($14.5 billion).

Under the mega tower deal, Idea has the option to sell its 11.15 percent stake in Indus for cash at the merger ratio that values the stake at Rs 6,500 crore ($1 billion). Under the transaction, Infratel agreed to pay 1,565 of its own shares for each Indus Towers share.

Vodafone India will receive 783.1 million shares in the combined company, valuing the U.K.-based firm's stake at Rs 28,400 crore ($4.3 billion).

If Idea decides to sell all its stake and Providence sells 3.35 percent of its 4.85 percent shareholding, the new entity will be 37.2 percent owned by Airtel and 29.4 percent by Vodafone Group, while 1.1 percent will be with Providence and the rest by public shareholders.

In case Idea and Providence decide to continue to stay invested, Airtel would have a shareholding of 33.8 percent in the combined entity. Vodafone, in such a scenario, would have a 26.7 percent stake while Idea Group would get 7.1 percent and Providence would have a 3.1 percent holding. The remaining 29.3 percent would be with public.