Bharti Infratel-Indus Towers merger: Reflects fierce price competition in the telecom market

The Indus-Infratel merger will create one of the largest tower companies in the world, with about 163,000 towers - about 41 percent of all Indian towers.

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The merger of Bharti Infratel with Indus Towers (Indus) reflects fierce price competition in the Indian telecom market, which has created pressure for consolidation and on incumbents to sell assets to raise funds, according to Fitch Ratings.

Bharti Infratel-Indus Towers merger  reflects fierce price competition

 

It said that: "We do not anticipate any change in Bharti Airtel's 'BBB-' rating, as the deconsolidation of 54 percent-owned Bharti Infratel's $450 million EBITDA and $ 1 billion in net cash will be offset by cash dividends and greater liquid equity value in the merged tower entity."

The firm also expects that some of the largest shareholders in the combined tower entity to sell down their stakes, or divest them entirely, following the merger, which appears at least partly designed to maximize equity valuations ahead of sales. Vodafone India and Idea Cellular Ltd - which own 42 percent and 11.1 percent of Indus, respectively - are merging, and have come under particular pressure since the entry of Reliance Jio into the market.

Both companies have already sold off towers managed outside Indus worth $1.2 billion, and we believe they may look to support their balance sheets further by selling down their stake in the merged tower entity. Idea raised another $1 billion through a combination of equity infusion by its parent and a private equity placement.

It further said "Price competition in the Indian telecom market is expected to ease beyond the short-term horizon as three large telcos emerge from consolidation, and the industry revenue is likely to grow in "mid-single digits" this year."

We expect industry revenue growth to be in the mid-single-digits in 2018, following a decline in 2017," Fitch added.

On the mega tower deal, Fitch said that it expects some of the largest shareholders in the combined entity to sell down their stakes, or divest them entirely, post-merger, which appears to be geared towards maximizing equity valuations ahead of sales.

 

The Indus-Infratel merger will create one of the largest tower companies in the world, with about 163,000 towers - about 41 percent of all Indian towers.

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"The merged entity will benefit from some economies of scale and will not face cash leakage through the dividend distribution tax, which is currently paid when Indus distributes dividends," Fitch noted.

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