Brookefield of US reported in talks to buy RCom's tower unit

US private equity firm Brookfield Asset Management has emerged a serious bidder for Reliance Communications' stake in RCom's tower unit. The talks with Brookfield follow Sanjiv Ahuja-led Tillman Global Holdings' failure to find a suitable financier for the Anil Ambani-led telco's tower assets, according to an Economic Times report citing sources.

RCom's plans to sell its Reliance Infratel towers business has been hanging fire ever since TPG Capital valued it well below the Rs21,500 crore initially discussed, which in turn prompted Tillman Global to scout for other potential financiers. Last December, RCom announced that the TPG-Tillman combine had made a non-binding pact to buy its tower assets.

RCom, the country's fourth-largest telco, has been seeking to pare its mammoth debt, pegged at Rs42,000 crore. But the deal for tower assets, which was to have been closed by 15 January, has had to be extended with both sides unable to take it to conclusion.

The engagement with Brookfield, however, is likely to progress only after RCom wraps up its much-anticipated merger with Aircel, said one of ET's sources. That's expected to take place in the next few weeks.

Brookfield, with $240 billion in global assets under management, is learnt to have initially valued RCom's towers at roughly Rs15,000 crore, well below the Rs21,000 crore-plus valuation that the telco is seeking.

"Actual valuation of RCom's towers can be arrived at only after the telco's merger with Aircel, and once suitable due diligence is conducted to identify potential overlaps / redundancies in the merged entity's tower portfolio," said one source.

Once there is agreement on valuation, the tower sale, he said, could be concluded in four-to-five weeks after the RCom-Aircel merger. RCom will shortly ask Ericsson, its pan-India managed services partner, to map potential overlaps in the combined tower portfolio of RCom and Aircel, based on current traffic and expected growth levels. Ericsson India did not reply to ET's query on whether it would identify overlaps in the combined RCom-Aircel towers portfolio.

Going forward, the RCom-Aircel merged entity is likely to add 25,000 new sites in the first year itself, which is slated to more than compensate for any reduction caused by redundancies.

A Brookfield Asset Management spokeswoman said the company "does not comment on market rumours or speculation". A detailed email query to RCom went unanswered.

Brookfield also wants clarity on whether RCom's towers business faces any potential revenue challenges in future, given that its present significant tenant, Reliance Jio Infocomm, pays well below the current market rental of roughly Rs30,000 per tower per month. "Any potential buyer of RCom's towers would obviously assess whether the company will be able to demand market rates from other potential tenants while accepting a discounted rate from Jio," one of the sources said.

Another source, however, dismissed such scepticism. "There's no case for other potential tenants to demand the discounted tenancy rental being offered to Jio since that is based on comprehensive and reciprocal infrastructure-sharing pacts that both the companies have inked involving towers, spectrum, optical fibre/microwave resources, ducts and voice fallback," he said.

Tillman had reportedly reached out to a host of potential buyers, including Farallon Capital Management, Carlyle and Mubadala, an investment firm of the Abu Dhabi government, but these discussions haven't progressed much. However, indications are that RCom may offer Tillman the right of first refusal if tower sale talks mature with Brookfield or any other buyer.

Reliance Infratel is 96 per cent owned by RCom. Minority and institutional investors such as George Soros' Quantum (M), NSR Partners, Galleon, HSBC Daisy Investment (Mauritius), Drawbridge Towers, Investment Partners B (Mauritius) which invested $287 million in 2007 own the remainder. The minority partners are also expected to exit with any sale of RCom's shares in Infratel.