RCom pact with Brookfield

By: Dhruv Kharayat

Reliance Communications (RCom) has signed a non-binding pact with Canada's Brookfield Infrastructure Group to sell a majority 51 per cent stake of its nationwide tower assets and related infrastructure of Anil Ambani’s company for Rs11,000 crore, making it one of the largest FDI in infrastructure sector. The news sparked a 2.6% rise in the RCom stock. 

RCom, the country's fourth-largest telco, has been seeking to pare its mammoth debt, pegged at Rs 42,000 crore. But the deal for tower assets, which was to have been closed by January 15, has had to be extended with both sides unable to take it to conclusion. As things stand, the entire Rs 11,000 crore will be used to lower RCom's net debt. The combination of RCom's wireless business with Aircel, which has already been signed and announced, will reduce the telecom operator's debt by another Rs14,000 crore. Both the deals combined will reduce RCom's debt to around Rs17,000 crore. 

Under the term sheet, the specified assets are intended to be transferred from Reliance Infratel Ltd. (RITL) on a going concern basis into a separate SPV, to be owned by Brookfield, said a RCom statement. It added that RCom will continue as an anchor tenant on the tower assets, under a long term MSA, for its integrated telecommunications business.

RCom and Brookfield believe expected considerable growth in tenancies based on increasing 4G offerings by all telecom operators, and the fast accelerating trends in data consumption. RCom and Brookfield also see several opportunities for consolidation in the towers industry in India that will further enhance growth and value creation in the future. After investing $2 billion in India since 2009-10 when it set up its local office, Brookfield is planning to invest $2 billion more in the country over the next two-three years to buy out upscale offices and commercial towers, stranded roads, power and utilities infrastructure. With assets under management of $250 billion, Brookfield, listed on the New York and Toronto exchanges, has surpassed Wall Street heavyweights Carlyle, KKR or even Apollo as the world's second-biggest manager of alternative assets.

Analyst believes that RCom financials will improve in FY17 given it does not require any major spend for spectrum or capex in the future, as post the merger with SSTL and Aircel being completed, and with spectrum sharing already implemented with RJio, it has extensive 2G, 3G and 4G networks already operational across the country.