In a mega M&A deal in the telecom tower space, Brookfield Asset Management on Friday said that it will acquire 100% stake in American Tower Corporation’s (ATC) India business for $2.5 billion (Rs 21,000 crore), which includes $2 billion (Rs 16,500 crore) enterprise value along side a ‘ticking fee accruing from October 1, 2023.
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Earlier, Miami-based infrastructure investment group, I Squared Capital was in talks to acquire ATC’s tower assets in India at an enterprise value of around $1.5-$1.75 billion.
The acquisition, which Brookfield is doing via its affiliate Data Infrastructure Trust (DIT), will make it the largest telecom tower operator in India, surpassing Indus Towers.
The deal, which is expected to close in the second half of 2024, subject to regulatory approvals, comes at a time when ATC India has been facing difficulties in running the tower business owing to dependency largely on just two telecom operators. Its largest client Vodafone Idea was defaulting on payments owing to its weak financial condition.
ATC took a $322-million (about Rs 2,700 crore) goodwill impairment charge for its India unit in the July-September quarter owing to the challenging business environment in the country.
Brookfield in its affiliate DIT already owns two tower companies – Summit Digitel and Crest Digitel. ATC, which is Brookfield’s third acquisition in the Indian telecom tower space, will also be included in DIT.
With ATC’s 78,000 towers and Brookfield’s earlier held 175,000 towers, the company will have a total tower strength of 253,000 towers, compared to Indus Towers’ 204,000 towers. The acquired sites are expected to diversify DIT’s revenues and increase touch points with all mobile network operators in India, Brookfield said.
“We look forward to expanding and enhancing our existing telecom tower portfolio in India, which enables a broader array of solutions for our customers and partners. Through strategic acquisitions like ATC India, we remain deeply committed to empowering digital connectivity and transforming the telecom infrastructure landscape across the region,” said Arpit Agrawal, managing director and head of infrastructure, India and Middle East, at Brookfield.
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However, ATC will continue to retain the full economic benefit associated with the Rs 1,600 crore optionally convertible debentures (OCDs) issued by Vodafone Idea to the company. The company will also be entitled to receive payments related to existing receivables in the country, according to the deal.
Analysts, however, expressed concern over the prospects of the telecom tower segment in the country, with only three telecom operators – one of which if financially weak – and six or seven tower firms.
The tower tenancy ratio, which is a key operating metric, is only at 1.3-1.4% and is not expected to grow significantly, according to industry estimates. Tower tenancy means the number of tenants on a tower. An increase in tenancy, leads to incremental revenue and Ebitda, which means that the key driver of revenue growth is tenancy.
“In the last 1.5 years, the trend has been shifting towards a single tower tenancy. This has in a way reduced the capex, but also affected the returns of the tower companies which they used to get from multiple tenancies on traditional towers,” said Ankit Jain, vice president and sector head at ICRA.
ICRA has a negative outlook for the tower sector, owing to higher receivables and dependency on weaker telcos. The tower industry’s dependence on weaker telcos in terms of tenancies remains high at around 34%, ICRA had said in a report.
However, Jain said that ATC under Brookfield, will continue to get business from Jio, like its been the case with Summit and Crest. Jio has the first right of refusal with Brookfield, which means it has first rights to tenancy in its towers.
Bharti Airtel owns 48% in Indus Towers, and is its anchor customer. The sector economics will not change with the deal and even Indus Towers will also not get affected, analysts said.
“Brookfield has been in operating in the tower sector for long now, but its core operation is asset management company, where a 7-8% asset yield in the tower space works out fine,” a Mumbai-based analyst said. “For this, the company needs only two tenants who pay rentals on time,” the analyst added.
In 2022, Brookfield acquired a portfolio of 5,000 indoor business solution sites and small cell sites, which advances the rollout of 5G and enables telecom operators to extend their coverage capacity in difficult-to-access and dense areas. Brookfield also has a portfolio of roughly 175,000 towers that were acquired in 2020 from Reliance Industrial Investments and Holdings Limited – Jio’s tower arm.
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In India, Brookfield has approximately $25 billion in assets under management across Infrastructure, real estate, renewable power & transition and private equity.
