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ATC seems to be despairing over its India operations

American Tower Corporation in its recently released annual report has said that it is looking for reduced exposure in its Indian operations., This is in striking contrast to its plans to a year back, when Sanjay Goel, president (APAC) of ATC had said, “ATC will look at both organic and inorganic play to expand its towers portfolio in India, but as a policy, we don’t comment on any specific ongoing deal opportunity.”

Extracts from ATC annual report
“As a result of the challenging business environment in India, we are exploring various strategic alternatives aimed at potentially reducing our exposure there, including the sale of an equity interest in our India operations to one or more private investors. Any such completed transaction could have a material impact on our financial statements and on our results of operations in the period in which any such transaction occurred. There can be no assurance that any such strategic alternative will be implemented and, if so implemented, as to the timing thereof, and any such proposed transaction would be subject to conditions, including regulatory approvals in India.

Our largest customer in India is VIL, which represented approximately 3.2% of our total revenue for the year ended December 31, 2022. In the third quarter of 2022, VIL communicated that it would make partial payments of its contractual amounts owed to us and indicated that it would continue to make partial payments for the remainder of 2022. In late 2022, VIL had communicated its intent to resume payments in full under its contractual obligations owed to us beginning on January 1, 2023. However, in early 2023, VIL communicated that it would not be able to resume payments in full of its contractual obligations owed to us, and that it would instead continue to make partial payments. We considered these recent developments and the uncertainty with respect to amounts owed under our tenant leases when conducting our annual impairment assessments for long-lived assets and goodwill in India. As a result, we determined that certain fixed and intangible assets had been impaired during the year ended December 31, 2022. An impairment of $97.0 million was taken on tower and network location intangible assets in India. We also impaired the tenant-related intangible assets for VIL, which resulted in an impairment of $411.6 million.

We identified the evaluation of the recovery of goodwill and long-lived assets held in the Company’s India reporting unit, along with any related impairments, as a critical audit matter due to the significant judgments made by management to estimate the timing and amount of cash flows and related estimated fair values used in the impairment analyses. There was a high degree of auditor judgment in evaluating management’s assumptions and estimates related to future tenant retention rates (specifically, a high degree of subjective auditor judgment was required to evaluate future revenues related to variability in receipts from a significant tenant in India), revenue growth rates, margin projections, the timing of future cash flows, the discount rate used and the determination of market multiples for the India reporting unit and related long-lived assets.

As of December 31, 2022, the India reporting unit had goodwill of approximately $881.6 million. As the fair value of the India reporting unit exceeded its’ carrying amount as of December 31, 2022, the Company determined that its related goodwill was not impaired. Other long-lived assets to be held and used in India at December 31, 2022 consisted of property and equipment, tenant-related intangible assets, network location intangible assets, and right of use assets of approximately $924.4 million, $379.5 million, $266.7 million and $668.9 million, respectively, after impairments were recorded during the year then ended of $58.6 million, $411.6 million, $38.4 million and $0.0 million, respectively.

India Term Loan—On February 16, 2023, the Company entered into a 12.0 billion INR (approximately $145.1 million at the date of signing) unsecured term loan with a maturity date that is one year from the date of the first draw thereunder (the “India Term Loan”). On February 17, 2023, the Company borrowed 10.0 billion INR (approximately $120.7 million at the date of borrowing) under the India Term Loan. The India Term Loan bears interest at the three month treasury bill rate as announced by the Financial Benchmarks India Private Limited at the time of borrowing plus a margin of 1.95%. Any outstanding principal and accrued but unpaid interest will be due and payable in full at maturity. The India Term Loan does not require amortization of principal and may be paid prior to maturity in whole or in part at the Company’s option without penalty or premium.

India Impairments-The Company reviews long-lived assets for impairment annually (as of December 31) or whenever events or circumstances indicate the carrying amount of an assets may not be recoverable.An impairment of $97.0 million was taken on tower and network location intangible assets in India. The Company also impaired the tenant-related intangible assets for VIL, which resulted in an impairment of $411.6 million.

If our customers (implying VIL) are unable to raise adequate capital to fund their business plans or face capital constraints, they may reduce their spending, file for bankruptcy or reduce or terminate operations, which could materially and adversely affect demand for our communications infrastructure and our services business.

Any significant cut in the customer-related cash flows in India could also impact our tower portfolio and network location intangible assets in the country.”

CT Bureau

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