India's Reliance Communications Ltd. is in talks with American Tower Corp. to sell a stake of up to 21 percent in its telecom towers business for at least $1.8 billion, a source familiar with the matter said.
Reliance Communications values the whole unit, Reliance Telecom Infrastructure Ltd. (RTIL), at 350 billion rupees ($8.7 billion), about a third more than the company said the business was worth last month, the source added.
Expectations that Reliance Communications may float off its towers business — which is set to benefit from rapid expansion in the world's fastest growing mobile services market — has boosted shares in India's second-largest mobile services firm after Bharti Airtel .
“This time it will be a strategic investor. And American Tower seems to be very much interested. Reliance Communications is in talks to sell 15 percent or 21 percent in the towers business,” the source said, adding the deal could be announced in the next 4-8 weeks.
In July Reliance Communications said it had sold a 5 percent stake in the unit to seven institutional investors for 14 billion rupees, which it said valued the whole business at 270 billion rupees.
Boston-based American Tower could not be reached immediately for comment. Last month, American Tower Chief Executive James Taiclet said he was talking with major Indian telecom operators about possible alliances.
After announcing the 5 percent stake sale of the tower unit in July, Reliance Communications Chairman Anil Ambani said more could be sold through an IPO or further placements.
An analyst said the higher valuation was justified, pointing to the unit's strong and stable cash flow as well as robust industry growth.
“So a nearly $9 billion valuation is very much possible,” said Naveen Kulkarni, a telecoms analyst at Religare Securities, Indian telecoms operators are looking to share infrastructure such as mobile phone towers to keep costs down amid intense price competition and a surge in low-income subscribers.
Shares in Reliance Communications ended up 0.15 percent at 532.35 rupees, roughly in line with the Mumbai market.
Reliance Communications is India's fifth most-valuable company with a market capitalization of more than $27 billion.
TOWER GAINS
Reliance Communications has 14,000 towers and plans to add 23,000 in the year ending March 2008, while larger rival Bharti Airtel plans to add 30,000 during 2007/08.
Analysts say Bharti Airtel and Reliance Communications, which operate in all 23 of India's telecom zones, would gain the most when other telecom companies expand operations to small towns and rural areas.
Ambani said last month RTIL's planned towers were expected to have a total tenant base of 100,000 by next March. Another group official had said the company was in talks with two to three mobile operators to have them as tenants on its towers.
Reliance Communications provides voice and data communication services on the CDMA platform across all of India's 23 telecom zones. It also offers GSM-based mobile services in seven zones.
India has more than six million subscribers signing up each month, lured by tariffs as low as one U.S. cent a minute and the extension of networks to rural areas as operators move away from cities.
Source: Reuters