As Bharti Infratel dithers on Indus merger, Vodafone has one funding option less

Bharti Infratel Ltd on Wednesday yet again deferred a decision on merger with Indus Towers Ltd. The company extended the long stop gap date of the proposed merger to 31 August.

While the company received regulatory approvals for the deal earlier this year, it extended the long stop date to April, then to June and now to August. The extensions come alongside the Supreme Court’s ongoing deliberations on adjusted gross revenue (AGR) dues.

Last week, the apex court asked private telcos, Bharti Airtel Ltd and Vodafone Idea Ltd, the main tenants of Infratel and Indus Towers, to make a “reasonable” upfront payment of AGR dues so as to consider a 20 year repayment period for the balance amount.

Bharti Airtel Ltd has paid 41% of the total AGR dues demanded by the government. Comparatively Vodafone Idea Ltd’s payments amount to only 12% of its dues.

If Vodafone Idea has to make upfront payment similar to Airtel (as a percentage of total AGR dues), then it will have to shell out 16,990 crore, a near impossibility considering the company’s dire financial situation.

The company is seen to have the ability to pay smaller amounts, perhaps by monetising its assets. One such asset monetisation option is to sell its 11.15% stake in Indus Towers for cash, after the merger with Bharti Infratel.

At the time of the announcement of merger in April 2018, this stake was projected to fetch Vodafone Idea 6,500 crore. Based on Thursday’s market price and original share swap ratio, Vodafone Idea’s stake in Indus Towers can still fetch 4,700 crore.

But the deferment of merger with Infratel now makes it difficult for Vodafone Idea to raise funds immediately.

As such, the prolonged delay in merger with Indus Towers comes as a dampener for investors. As pointed out in this column earlier, operating earnings of Indus Towers were hit soon after Vodafone-Idea merger and the tenancy exits thereafter. The Supreme Court’s decision on the 20-year AGR repayment schedule is crucial for the survival of Vodafone Idea, and it’s likely that Infratel is seeking this clarity before compelting the merger with Indus. “If Infratel itself is not sure about Vodafone Idea’s survival, how can investors muster strength to buy the stock,” says an analyst.

The uncertainty does not bode well for Bharti Infratel as well. It holds 42% stake in Indus Towers and a weak financial condition of a large customer (Vodafone Idea) crimps business prospects. “Viability of Bharti Infratel’s operating model depends on the number of players in the telecom industry. Duopoly in a market where one player (Reliance Jio) has its own infrastructure could make Infratel’s working model unviable,” said an analyst at another broking firm.


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