Photographer: Dhiraj Singh/Bloomberg
American Tower Boosts India Footprint With $1.2 Billion DealBy and
Picks up Vodafone, Idea towers as merging carriers shed assets
Valuation ‘on low side’ as tenancy dropping, Bernstein says
American Tower Corp. agreed to buy mobile-phone towers from Vodafone Group Plc’s Indian business and Idea Cellular Ltd., boosting its infrastructure in the country by a third, as the merging carriers sell off assets to raise cash for debt repayment amid a scathing price war.
The Boston-based real estate investment trust agreed to pay 78.5 billion rupees ($1.2 billion) for about 20,000 towers owned by the carriers in a deal that is expected to be completed in the first half of 2018, American Tower said in a statement Monday. The assets will probably generate about $320 million in property revenue and $120 million in gross profits for their first full year under ATC, according to the statement.
The facilities add to the company’s base of 58,000 towers nationwide in India, serving all the major carriers amid a sweeping consolidation that includes a merger by Vodafone India and Idea Cellular that will overtake Bharti Airtel Ltd. as the country’s largest wireless service provider.
That combination will also reduce the tenancy ratio -- or the average number of operators per tower -- on the facilities American Tower agreed to buy, as about 6,300 overlapping sites will be removed, according to Chris Lane, an analyst at Sanford C. Bernstein & Co.
The tower deal’s valuation is “on the low side,” because the tenancy ratio is low and set to fall after the merger, Lane said in an email.
The tenancy ratio is expected to rise to 2.9 times by March 2020, from about the 1.95 times average for India as of 2015, according to a study last year by the Associated Chambers of Commerce and Industry of India and audit firm KPMG.
Vodafone India’s 10,235 towers had a tenancy ratio of 1.52 while the 9,900 towers Idea owns had a slightly higher ratio at 1.8, according to the statement by both the companies.
American Tower will pay about 4 million rupees per tower under the deal announced Monday. The company paid 76 billion rupees for a 51 percent stake in Indian tower operator Viom Networks Ltd. in 2015, a transaction that quadrupled its towers base to 56,000.
American Tower Chief Executive Officer Jim Taiclet, who has said he expects international revenue to top U.S. sales in three to seven years, has been especially bullish on India.
“The government there is doing all the right things,” he said in a June interview. “The government is asking industry for inputs and they are listening.”
The company got 41 percent of its $5.79 billion in revenue last year from international operations, an increase from 32 percent in 2015, according to data compiled by Bloomberg. Latin America contributed 17 percent while Asia amounted to 14 percent.
The deal also comes as rivals of Vodafone and Idea are also seeking bids on their infrastructure to raise funds needed to pay down debt and build up fourth-generation, or 4G, networks.
Idea will use proceeds from the tower sale to increase 4G coverage as well as pare debt, Himanshu Kapania, the carrier’s managing director, said by phone Monday, without elaborating on how much debt will be repaid.
Bharti Airtel said last month that it has been approached by few “reputed global investors” to acquire a large stake in its tower firm, Bharti Infratel Ltd., while smaller rival Reliance Communications Ltd. is also looking to sell its towers among other assets as it faces creditors seeking overdue payments.
While American Tower’s deal priced towers on the low side, Bharti Infratel may do better, as its spires have higher tenancy ratios, according to Lane of Bernstein.
As for sellers Vodafone India and Idea, they will continue to use the towers as “preferred partners” that receive preferential rights for future business on existing towers and on sites being acquired in some Indian markets, American Tower said in the statement.