Brookfield Eyeing Jio’s Infra Assets In Mega Deal

Brookfield Asset Management, one of the world’s top infrastructure and private equity investors, is in early talks to buy controlling shares in Reliance Jio’s telecom towers and fiber assets valued at over USD 15 billion (Rs 1.07 lakh crore), people directly aware of the matter said. The deal, if it happens, would be the largest private equity action, besides being one of the largest M&As in India.

Jio, the telecom arm of India’s most valued company Reliance Industries (RIL), recently said it was spinning off tower and fiber into two separate entities, as part of an anticipated de-leveraging exercise. RIL is keen on retiring and refinancing a chunk of its Rs 3 lakh crore, or $40 billion, debt mostly soaked up to finance Jio’s disruptive roll-out.

Jio operates with a network of over 2.2 lakh towers, including third party ones, and around three lakh route kilometer of optic fiber, in serving a subscriber base fast approaching 300 million.

Canada-based Brookfield, managing assets worth more than USD 330 billion globally, has been eyeing telecom infrastructure assets in Asia’s third-largest economy for a while. Brookfield had purchased the loss-making East-West Pipeline—a 1400km pipeline connecting Kakinada in Andhra Pradesh to Bharuch in Gujarat—an entity owned by Mukesh Ambani and family for USD 2 billion last year.

“Jio plans to take certain infrastructure assets out of the balance sheet as part of the de-leveraging exercise. It is exploring a deal with Brookfield to spin off assets which have the ability to carry huge debt when backed by long-term operating agreements,” aid a person familiar with the matter. Brookfield, which has built a rapport with RIL, along with its global sponsors are keen on a full acquisition, but details would be flushed out only as talks move forward.

A potential stake buys in Jio’s assets could make Brookfield the largest telecom infrastructure player in the country. Brookfield was unavailable for comment. RIL didn’t respond to an email query sent on Wednesday till the time of going to press.

Indus Towers, majority-owned by rival telcos Vodafone and Airtel, is merging with Bharti Infratel creating a $14 billion combined with 1.63 lakh towers. Private equity investor KKR and one of its sponsors Canadian Pension Plan Investment Board will hold 6% in the combined entity. KKR had bought into Bharti Infratel to trigger a $5 billion share purchase in the eventual combine, but the deal-making hasn’t progressed.

Jio’s infra assets could be valued anywhere between USD 12-15 billion depending on how it consolidates towers spread between its own, third party and those of the bankrupt Reliance Communications (RCom), which it was expected to a buyout. Incidentally, Brookfield was close to acquiring Anil Ambani-owned RCom’s tower unit before the deal collapsed.

If the transaction with Brookfield gets completed, it will be a rare private equity deal within the broader RIL. In the past, the group has had a joint venture with New York-based DE Shaw for financial services.

The transaction with Brookfield will help Jio take a chunk off its debt from its books and lower the leverage ratio as it continues the ramp up in telecom, targeting a 50% market share in the near future. Jio’s move to hive off the tower and fiber businesses is in sync with the trends in the telecom industry where players split their infrastructure assets into separate entities.

Analysts said any de-leveraging deal would only intensify Jio’s marketplace battles with rivals in a hemorrhaging Indian telecom sector. Rivals Vodafone Idea and Bharti Airtel have reported record losses and is in the midst of multiple fund-raising activities to face the Jio heat.

Jio has been making healthy contributions to RIL’s revenues and profits in recent quarters. But the heavy capital expenditure ensures it will burn cash for some time to come. The telecom unit reported a profit of Rs 831 crore on operating revenue of Rs 10,383 crore in the third quarter of fiscal 2019.

Ambani’s ambition is to make Jio as big as RIL’s traditional businesses in the future. The energy business—refining and petrochemicals—currently contribute the bulk of RIL’s revenues and profits, though subdued margins there would also hasten the proposed de-leveraging moves. ―Times Of India