With the sale of the Indian business of American Towers Corp., the consolidation of the tower business in India is now complete.
Indus Towers and Brookfield Asset Management, through its Indian subsidiary Data Infrastructure Trust, are now the only two major players in the country. While Indus Tower boasts over 2.04 lakh towers across the country, American Tower Corp. had 76,400 towers at the end of September 2023.
The sale of Indian business by American Towers is nothing short of a stress buildup in the tower industry. At the end of 2022, the company’s Asia Pacific assets, 99% of which are Indian towers, were valued at $4.2 billion.
The Boston-based real estate investment trust sold ATC India operations at an enterprise value of approximately $2 billion, half of what the assets were valued at the end of 2022.
Proceeds associated with the enterprise value assume the repayment of existing intercompany debt and the repayment of the existing India term loan by Data Infrastructure Trust, an affiliate of Brookfield Asset Management, ATC said in a statement.
The telecom tower sector in India is exposed to the uncertainty of Vodafone Idea’s payments. The cash-strapped company is the second-largest customer for Indus Towers and ATC.
Bharti Airtel, along with its African subsidiaries, contributed nearly 9% of ATC’s total property revenue, compared with Vodafone Idea, which had a contribution of 4%, according to regulatory filings. Reliance Jio’s contribution was 2%.
The risk associated with payments from Vodafone Idea and the relatively lower growth outlook for the company have led to lower valuations across the board in the tower industry, according to an analyst who said this on the condition of anonymity, as he isn’t authorised to speak to the media.
With Vodafone Idea’s ballooning debt and meagre cashflows, uncertain funding plans remain an overhang on the company. Its total debt stands at over Rs 2 lakh crore as of Sept. 30, 2023.
While the financial statements are prepared on a ‘going concern’ basis, the “group’s ability to continue as a going concern is dependent on raising additional funds as required, successful negotiations with lenders and vendors for continued support, and the generation of cash flow from operations that it needs to settle its liabilities as they fall due,” it said in its earlier financials.
However, Indus Towers is set to benefit from tailwinds in Bharti Airtel but has over 30% exposure to Vodafone Idea, the above-mentioned analyst said. The Sunil Mittal-backed company has analysts turning positive on the company’s future prospects as it continues to gain subscribers.
Brookfield will have some Jio tailwind, as it has bought out Jio Towers, the analyst said. Brookfield’s exposure to Vodafone Idea may be at least 15-20% on an overall portfolio level, he said.
As only two telcos—Jio and Bharti—are investing in 5G, BofA Securities expects the market share shift to start gravitating towards these telcos at a faster pace.
Indus Towers received a double upgrade from Bank of America Securities, citing the benefit of the expansion of Bharti’s 4G network in Tier 2 and Tier 3 cities along with a potential tariff hike in 2024.
“One of the issues in the past was that VIL was not paying Indus on time, leading to receivables rising to Rs 5,500 crore. For 6–9 months, VIL has been paying full against the monthly invoice,” BofA Securities said in a Jan. 9 note.
However, the risk of the deterioration of Vodafone Idea’s cashflows remains.
Vodafone Idea’s operating cashflows fell 3% year-on-year for the six months ending Sept. 30 to Rs 9,712 crore. However, the payment of long-term loans, increased interest rates, and lease liabilities consumed these cashflows.
Cash and cash equivalents stood at Rs 119.6 crore as of Sept. 30, an increase of 36% from the end of the corresponding quarter of the previous year.
The company has already missed the December-end deadline with no certainty of a fund raise in sight. NDTV Profit