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RCom To Sell Tower Assets To TPG, Tillman To Trim Debt

Financial analysts and industry watchers estimate the deal size could be close to Rs 22,000 crore for the tower and a few thousand crores more for other assets

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Reliance Communications Ltd (RCom) on Friday (4 December) said it has entered into an agreement with private equity investors Tillman Global Holdings and TPG Asia to sell them its tower assets and other related infrastructure.

The company didn’t give any financial details since the transaction is subject to regulatory and other approvals and processes, and may not necessarily get completed. Yet, financial analysts and industry watchers estimate the deal size could be close to Rs 22,000 crore for the tower and a few thousand crores more for other assets.

"The primary driver for the deal for RCOM is to reduce their leverage position since with high debt the company was constrained from making fresh capex investments,’’ said Piyush Jain, financial research analyst with Morningstar Investment Adviser. ``This deal will position RCom to be able to take advantage of 4G and its alliance with Reliance Jio. ‘’

As per the agreement, the specified assets will be sold by RCom’s unit Reliance Infratel on an ongoing basis into a separate special purpose vehicle, which in turn will be owned by Tillman and TPG. Tillman and TPG will also evaluate purchase of RCOM’s extensive nationwide inter-city and intra-city optic fibre assets, in a separate and independent transaction.

RCOM will continue as an anchor tenant on the tower assets, under a long term MSA, for its integrated telecommunications business. RCOM intends to utilize the proceeds of the proposed transaction only to reduce its debt, the company said in a statement.

Jain estimates RCOM’s debt will fall to about Rs 15-17,000 crore once the deal gets completed. The debt could fall further once the company further monetizes its other assets. With reduction in debt even the interest burden for the company will shrink remarkably.

One may recall that RCOM had also entered into an agreement with Sistema Shyam Teleservices to acquire the latter’s telecom business in an all-stock deal. Following the deal, RCOM will be able to extend validity of its 800/850 mhz band spectrum in 8 circles including Delhi, Gujarat, Kolkata, Karnataka, Tamil Nadu, and Kerala by 12 years from 2021 to 2033, and also acquire 9 million customers and revenue for about Rs 1500 crores each year. The infrastructure will also give RCom superior spectrum for use in 4G.

RCOM will continue as an anchor tenant on the tower assets, under a long term MSA, for its integrated telecommunications business. RCOM intends to utilize the proceeds of the proposed transaction only to reduce its debt, the company said in a statement today.

Yet, the deal may have fallen short of investor’s expectation and RCOM’s shares fell 2.9 per cent to Rs 81.20 per shares on the Bombay Stock Exchange.