GTL deal off, Reliance in a bind
07-09-2010
Huge debt overhang has crippled the normally aggressive telco
A proposed $9 billion deal to merge the telecom tower assets of Reliance Infratel with GTL Infrastructure has failed to materialise, the two companies said. The deal was expected to help Reliance Communications, which owns Reliance Infratel, to reduce debt and make itself more attractive to suitors like Gulf operator Etisalat.
Reliance Communications is now reported to be searching for other investors for sale of the tower assets.
While the two parties did not specify the reasons for failure of the deal, analysts speculated that valuation problems could have been a bottleneck.
Reliance is currently in talks to sell 26 per cent of itself to Etisalat. The Gulf operator is also considering other potential partners, including Idea Cellular.
Reliance Communications has traditionally been among the most aggressive competitors, but it is now saddled with debt and is facing a hefty new bill after securing a share of 3G spectrum earlier this year.
Reliance has net debt of $7bn, giving it a ratio of net debt to earnings before interest, taxation, depreciation and amortisation of 4.5 times. Its competitors, Bharti Airtel and Idea, have debt of about two thirds or less of this level.
The deal with GTL, under which the tower company would have bought nearly 50,000 towers from Reliance, would have reduced the mobile operator's net debt to ebitda to between two and three times. "It would certainly have put RCom on a forward-facing trajectory" a Mumbai broker told Financial Times
Reliance will now have to find other ways of raising capital, either through an initial public offering of the tower unit, known as Reliance Infratel, through a share placement or via other means.
A proposed $9 billion deal to merge the telecom tower assets of Reliance Infratel with GTL Infrastructure has failed to materialise, the two companies said. The deal was expected to help Reliance Communications, which owns Reliance Infratel, to reduce debt and make itself more attractive to suitors like Gulf operator Etisalat.
Reliance Communications is now reported to be searching for other investors for sale of the tower assets.
While the two parties did not specify the reasons for failure of the deal, analysts speculated that valuation problems could have been a bottleneck.
Reliance is currently in talks to sell 26 per cent of itself to Etisalat. The Gulf operator is also considering other potential partners, including Idea Cellular.
Reliance Communications has traditionally been among the most aggressive competitors, but it is now saddled with debt and is facing a hefty new bill after securing a share of 3G spectrum earlier this year.
Reliance has net debt of $7bn, giving it a ratio of net debt to earnings before interest, taxation, depreciation and amortisation of 4.5 times. Its competitors, Bharti Airtel and Idea, have debt of about two thirds or less of this level.
The deal with GTL, under which the tower company would have bought nearly 50,000 towers from Reliance, would have reduced the mobile operator's net debt to ebitda to between two and three times. "It would certainly have put RCom on a forward-facing trajectory" a Mumbai broker told Financial Times
Reliance will now have to find other ways of raising capital, either through an initial public offering of the tower unit, known as Reliance Infratel, through a share placement or via other means.
