How Will Infratel-Indus Merger Deal Help Vodafone Idea?

The Department of Telecom (DoT) has cleared the merger of telecom tower companies Bharti Infratel and Indus Towers on Friday, an Economic Times report citing sources said. The companies are believed to have received the foreign direct investment (FDI) the key to a merger that was delayed for several months.

How will the deal benefit Vodafone Idea?

Indus Towers is a joint venture between Bharti Infratel (42%), UK-based Vodafone Group Plc (42%), Vodafone Idea (11.15%) and US-based private equity firm Providence (4.85%). Bharti Infratel is a subsidiary of Bharti Airtel.

It is expected that after the merger, Vodafone Idea will be able to monetise its 11.15% stake to pay its DoT dues. The stake is estimated to fetch the telecom operator Rs 4,500 crore

Vodafone Idea has been the worst hit by the Supreme Court's AGR (adjusted gross revenue) verdict. Its several efforts to gain relief on the statutory dues failed after the 24 October verdict.

According to DoT estimates, the company has to pay Rs 56,709.49 crore to the government as interest and principal on the dues. On Monday, it paid Rs 2,500 crore of the dues and another Rs 1,000 crore on Thursday.

Last week, after reporting a net loss of Rs 6,453 crore for the December ended quarter the telecom operator said it was facing difficulty raising capital as AGR dues caused credit rating agencies to downgrade its NCDs. On Monday, the company informed that Care Ratings Limited (CARE) has further downgraded ratings on Long Term Bank Facilities as well as NCDs of the company from BBB- to BB-, creating further obstacles in raising funds.

What is AGR?

AGR is DoT's measure to calculate levies payable by operators. Telcos argued that AGR should comprise revenue from telecom services, but DoT insisted that AGR should include all revenue earned by an operator, including that from non-core telecom operations. DoT's definition of AGR was upheld by the court, putting an end to a 14-year old legal battle.

The merger

The merger between Bharti Infratel and Indus Towers was announced back in April 2018, but the companies were awaiting DoT's approval.

Bharti Infratel's board had allowed two extensions of 2 months each- on 24 October and then on 24 December-to secure more time.

The merger would create the world's second-largest tower company as the combined entity will own more than 163,000 towers, second only to China Tower.