Bharti Infratel and Indus Towers Merger Will Reflect in Fierce Price Competition: Fitch

In an unexpected move, Bharti Airtel agreed with the merger of Indus Towers and Bharti Infratel, thus creating a pan-India tower player. The merger of Bharti Infratel with Indus Towers (Indus) reflects fierce price competition in the Indian telecom market, which has created pressure for consolidation and on incumbents to sell assets to raise funds, says Fitch Ratings. “We do not anticipate any change in Bharti Airtel’s ‘BBB-‘ rating, as the deconsolidation of 54%-owned Bharti Infratel’s USD 450 million EBITDA and USD 1 billion in net cash will be offset by cash dividends and greater liquid equity value in the merged tower entity. Deconsolidation of Infratel will only begin in the financial year ending March 2020 (FY20), once regulatory approvals are obtained,” said Fitch Ratings in a report.

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The research firm is also expecting some of the largest shareholders in the combined tower entity to sell down their stakes, or divest them entirely, following the merger, which appears at least partly designed to maximise equity valuations ahead of sales. Vodafone India and Idea Cellular – which own 42% and 11.1% of Indus, respectively – are merging, and have come under particular pressure since the entry of Reliance Jio into the market.

Both companies have already sold off towers managed outside Indus worth USD 1.2 billion, and they may look to support their balance sheets further by selling down their stake in the merged tower entity. Idea Cellular raised another USD 1 billion through a combination of equity infusion by its parent and a private equity placement.