India’s largest mobile operators agree $14.5bn infrastructure merger

Financial Times

Union will create biggest telecoms tower business outside China

Simon Mundy in Mumbai 9 HOURS AGO 
India’s largest mobile operators have agreed a $14.5bn merger of infrastructure assets that will create the biggest telecoms tower business outside China. It comes as financial pressure increases due to a price war with newcomer Reliance Jio.
The merger between Bharti Infratel and Indus Towers will create a business with 163,000 towers, controlled by Bharti Airtel and Vodafone, the country’s two largest mobile operators by subscriber numbers. The deal terms, announced on Wednesday, give the merged entity an equity value of Rs965bn ($14.5bn).
The agreement follows signs of growing financial strain among the incumbent operators, which have lost market share to Reliance Jio, backed by billionaire tycoon Mukesh Ambani. The new mobile phone operator has attracted more than 170m customers by offering cut-price mobile data packages.
Indus Towers was formed in 2007 as a joint venture between Airtel and UK-based Vodafone — each of which holds a 42 per cent stake — along with Idea Cellular, the third-largest operator, and US fund manager Providence Equity Partners. Airtel, which owns the majority of Infratel, will own more than a third of the merged entity, with Vodafone holding more than a quarter. 
While the new company will take the name of Indus Towers, it will assume Infratel’s stock exchange listing. Chris Lane, an analyst at Bernstein, said this would prepare the way for Airtel and Vodafone to sell down their stakes to raise cash, although he added that they were likely to wait for the industry’s operating performance to improve in the hope of realising a higher valuation. 
Idea — backed by the Aditya Birla conglomerate — has the option of selling its 11.2 per cent stake in Indus before the merger’s completion, and Mr Lane said it was likely to do so. “Idea needs the money,” he said.
Idea, which is in the process of merging with Vodafone India, has been the worst-performing large operator since Jio’s arrival, reporting a net loss of Rs13.6bn in the last three months of 2017. In January Idea announced plans to raise Rs67.5bn in new equity, in a bid to reduce its debt to levels that met the merger terms.
Airtel, meanwhile, on Tuesday reported an 82 per cent fall in quarterly earnings for the first three months of this year. Revenue at the core Indian mobile business fell 20 per cent from a year earlier to Rs103.5bn, with Airtel pointing to “heightened financial stress across the industry led by continued below-cost pricing from the new operator”.
Jio was likely to raise its tariffs when it had reached a certain level of market share, but this did not appear imminent, Mr Lane said. “I think we have at least a year before things start to look better.”
​Clarity on the future of its investment​ in Indus could help smooth the path towards Vodafone’s proposed buyout of Liberty Global’s cable assets in Germany and eastern Europe, which are valued at about €​17bn. ​