NEW DELHI: Bharti Airtel and the Vodafone Group Plc are in talks with a consortium led by private equity firm KKR to slash their stakes by over half in the company that will be created by the imminent merger of Bharti Infratel and Indus Towers. This could lead to a change in management at the merged entity, which will be among the world’s largest tower companies.
“The combined entity is being valued at $12-13 billion and once Bharti Infratel and Indus Towers merge, Bharti Airtel and Vodafone Group are aiming to bring their stakes down to around 13% each,” a person with knowledge of the development told ET.
The merger of the tower companies, which has been in the making for about a year, is expected to come to fruition along these lines shortly, sources said.
KKR Could Hold up to 32%
After the merger, Bharti Airtel and Vodafone Group, which currently own 42% each in Indus Towers, will hold 37.2% and 29.4%, respectively. KKR and Canada Pension Plan Investment Board (CPPIB) will own a combined 6%, stemming from their stake of over 10% in Bharti Infratel. Vodafone Idea, currently holding over 11% in Indus, is expected to exit at the time of merger.
“Post merger, Bharti Airtel and Vodafone Group would reduce their stakes, by selling them primarily to KKR and a minority part to Canada Pension and some others,” said a second person familiar with the negotiations.
KKR could eventually hold anywhere between 25% and 32% in the merged entity, which will have over 160,000 towers, with CPPIB and some others having minority stakes.
Both people said Bharti Airtel and Vodafone Group are expected to retain a minimum of 13% at the beginning, allowing them certain rights such as veto powers over signing and terminating contracts with clients, among others. However, the Vodafone Group is expected to eventually exit the tower company.
The merger of Bharti Infratel, India’s only listed tower company, and Indus Towers is set to come up for approval at the National Company Law Tribunal (NCLT) on May 14. “The stake sales in the new entity should conclude by June, when the merger is likely to close,” the second person said.
Vodafone Group declined to comment on the matter, while Bharti Airtel and KKR didn’t respond to emailed queries sent by ET.
If the merged entity is valued at $13 billion, Bharti Airtel could raise about $3.2 billion (Rs22,400 crore) by reducing its stake from over 37% to 13%. On its part, the Vodafone Group could raise around $2.1 billion by reducing its holding to 13% from over 29%.
Bharti Infratel closed 3.8% lower at Rs261.85 on the BSE on Tuesday, while Bharti Airtel ended 1.4% down at Rs320.20. Vodafone Idea fell 4.6% to Rs15.60.
The stake sale is expected to generate much-needed cash for Bharti Airtel that will help strengthen its balance sheet, bolster its 4G network to compete with Reliance Jio Infocomm and prepare for 5G. For Vodafone Group, it will be a return on some of its investment in India. It recently invested Rs 11,000 crore in Vodafone Idea’s Rs25,000-crore rights issue.
Bharti Airtel, which had net debt of Rs 1.06 lakh crore at the end of December, is planning to raise Rs25,000 crore via its own rights issue, which opens on May 3. The company has raised Rs 27,800 crore in the last three years by selling stakes in Bharti Infratel, the direct-to-home (DTH) satellite TV unit, the Africa business and divesting towers in Africa and operations in two countries.
Bharti Airtel and Vodafone Idea have been under financial pressure since the entry of Jio over two years back, affecting revenue and driving their India mobile businesses into losses. Both have been raising cash through various means to pare debt and expand their 4G networks to take on Jio, which has almost caught up with them, both on revenue market share and subscriber numbers.