Bharti Infratel, Indus likely to invest Rs 3,500 crore capex for FY19 ahead of merger

Bharti Infratel and Indus Towers are likely to invest Rs 3,500 crore in operations as capital expenditure for 2018-19 as they continue to operate on 'business-as-usual' mode till their merger happens before the fiscal-end, sources said.

The two companies, last month, announced a merger deal that will create a USD 14.6 billion firm with world's second-largest number of mobile masts. The merged entity will have, in its fold, more than 1,63,000 towers across India - largest after China Tower.

The transaction is subject to regulatory and other approvals which the two companies will now pursue, starting with Competition Commission of India (CCI) and thereafter Sebi, NCLT and Department of Telecom (FDI approval). The companies have said the deal is expected to close before the end of 2018-19.

A source privy to the development said the annual financial planning continues on course for both the companies as it is 'business-as-usual', and that Infratel's capex is expected to be in the ballpark range of Rs 1,200 crore in 2018-19.

Similarly, Indus Towers - where Infratel holds 42 per cent stake - is likely to infuse roughly Rs 2,300-2,500 crore as capex this year, said the official who did not wish to be named.

Indus Towers is jointly owned by Bharti Infratel (42 per cent holding), Vodafone (42 per cent), Idea Group (11.15 per cent) and Providence (4.85 per cent).

The amount of investment is similar to last year's levels and will go into "new towers, tenancies and replacement capital", the official said adding that the investments are being funded from internal accruals of the two tower firms.

A Bharti spokesperson declined to comment on a detailed e-mailed query sent to the company. Indus Towers did not wish to comment.

"The capex amount will also be used for replacement of batteries, DG (diesel generators), power equipment...As the tenancies increase, the two companies will continue to increase their capacities of mobile towers ahead of their proposed merger," said the source.

Last month, the two entities announced that, "Indus Towers will be merged with and into Bharti Infratel through a scheme of arrangement." The merged entity, which will be called Indus Towers, will remain listed.

Bharti Airtel, which owns 53.5 per cent in Bharti Infratel, will get 33.8-37.2 per cent stake in the combined entity. Its final shareholding depends on what Aditya Birla Group's Idea and Providence do with their minority shareholding in Indus Towers.

Vodafone India will get between 26.7 per cent and 29.4 per cent of the Indus-Bharti Infratel combine.

The merger will help unlock value for the companies which are locked in a tariff war unleashed by newcomer Reliance Jio Infocomm that has hurt earnings and triggered consolidation in the sector. Vodafone and Idea are already in the final stages to merge their mobile operations.

Airtel had separately also stated last month that it plans to engage with potential investors to evaluate a stake sale in the combined tower company, which will have an equity value of Rs 96,500 crore (USD 14.5 billion).

Under the mega tower deal, Idea has the option to sell its 11.15 per cent stake in Indus for cash at the merger ratio that values the stake at Rs 6,500 crore (USD 1 billion). Under the transaction, Infratel agreed to pay 1,565 of its own shares for each Indus Towers share.

Vodafone India will receive 783.1 million shares in the combined company, valuing the UK-based firm's stake at Rs 28,400 crore (USD 4.3 billion).

If Idea decides to sell all its stake and Providence sells 3.35 per cent of its 4.85 per cent shareholding, the new entity will be 37.2 per cent owned by Airtel and 29.4 per cent by Vodafone Group, while 1.1 per cent will be with Providence and the rest by public shareholders.

In case Idea and Providence decide to continue to stay invested, Airtel would have a shareholding of 33.8 per cent in the combined entity. Vodafone, in such a scenario, would have 26.7 per cent while Idea Group would get 7.1 per cent and Providence would have 3.1 per cent holding. The remaining 29.3 per cent would be with public.