RCOM announces tower deal with Brookfield Infra, to get Rs 11,000 cr upfront

Reliance Communications ltd. (RCOM) on Wednesday announced the signing of binding agreements for the acquisition of its nationwide tower assets by affiliates of Brookfield Infrastructure Partners lP (NYSE: BIP; TSX: BIP.UN) and its institutional partners.

RCOM will receive an upfront cash payment of Rs 11,000 crore ($ 1.6 billion) on completion of the transaction, a move that will help it reduce debt by 70 per cent, the company said.

"The transaction will represent the largest-ever investment by any overseas financial investor in the infrastructure sector in India, and is a strong reflection of the confidence of the international investment community in the long-term growth potential of the Indian economy," an RCOM statement said.

RCOM will also receive Class B non-voting shares in the new tower company, providing 49 per cent future economic upside in the towers business, based on certain conditions, the statement said. 

"RCOM expects significant future value creation from the B Class shares, based on growth in tenancies arising from increasing 4G rollout by all telecom operators and fast accelerating data consumption," the statement said.

RCOM's telecom towers will be demerged into a separate new company that will be 100 per cent-owned and independently managed by Brookfield Infrastructure, "thereby creating the second-largest independent and operator-neutral towers company in India", the statement said.

RCOM will enjoy certain information and other rights, but will not be involved directly or indirectly in the management and operations of the new company, the statement said, adding: "RCOM and Reliance Jio will continue as major long-term tenants of the new tower company, along with other existing third-party telecom operators."

RCOM will utilise the Rs 11,000 crore payment solely to reduce its debt. The already announced combination of RCOM's wireless business with Aircel, and the monetisation of the tower business, will together reduce RCOM's overall debt by Rs 31,000 crore or nearly 70 per cent.

RCOM will continue to hold a 50 per cent stake in the wireless business in combination with Aircel and the 49 per cent future economic upside in the towers business "and will monetise these valuable assets at an appropriate time in the future to further substantially reduce its overall debt", the statement said.

The implementation of spectrum trading and sharing arrangements with Reliance Jio to secure a nationwide 4G footprint with the deepest penetration and the most efficient 850 MHz band spectrum; the merger of the Indian telecom business of Sistema Shyam Telecom ltd.; the combination of the wireless business with Aircel to derive operational and revenue synergies and achieve further industry consolidation; and the monetisation of the towers business in this transaction with Brookfield Infrastructure "are all important milestones in RCOM's deleveraging and asset light strategy for future growth", the statement said.

The transaction is subject to applicable approvals, including shareholder and regulatory approvals and lenders' consents.