The uncertainty around Vodafone Idea’s financial position, especially following the adjusted gross revenue (AGR) verdict of the Supreme Court, has left the Indus deal hanging in a limbo
The Bharti Infratel board on Wednesday extended the long stop date for its pending merger with Indus Towers to 31 August, the sixth such extension of the deadline for closing the deal.
“As the conditions precedent to be fulfilled for the scheme to become effective cannot be completed by the extended long stop date of 24 June 2020, the board of directors have further extended the long stop date to 31 August 2020, subject to agreement on closing adjustments and other conditions precedent for closing, with each party retaining the right to terminate and withdraw the scheme," said an exchange filing by Bharti Infratel.
The uncertainty around Vodafone Idea’s financial position, especially following the adjusted gross revenue (AGR) verdict of the Supreme Court, has left the Indus deal hanging in a limbo. Vodafone Idea’s financials matter as the telecom operator has 30% tower tenancies on Bharti Infratel and 50% tenancies with Indus Towers. Some impact of the pandemic and resultant change in telecom demand, as well as the financial situation of stakeholders, is also likely to be factored in before completion of the merger.
Bharti Airtel holds 53.5% shares of Bharti Infratel, while 10% is held by KKR/CPPIB and 35.5% is public. UK based Vodafone Group Plc. holds 42% in Indus Towers, with 11.2% being held by Vodafone Idea and 4.8% by Providence.
The deal, which was signed in April 2018, is expected to create one of the world’s biggest telecom tower companies.
Hearing the case on dues related to AGR of telecom companies, the top court had on 18 June directed them to furnish details of revenues generated and taxes paid in the last 10 years for review by department of telecommunications (DoT). This was after the telcos submitted before the apex court that furnishing bank guarantees under their current strained financial health will hamper planned investments. The telcos are hoping for a 20-year staggered payment plan though the court is likely to order some upfront payment, which can impact Vodafone Idea’s financial position.
“We believe the cloud on Vodafone Idea’s viability remains an overhang on the Indus merger. We think the board will prefer to get more clarity on the Supreme Court’s decision on staggered payment terms before taking the final decision on the merger," noted a report by Credit Suisse following the initial court discussions on 11 June.
The top court has given DoT time till the third week of July to consider the proposals of telcos on payment of AGR dues. This directive of the court is largely being perceived as positive for the telecom ecosystem.
“This (extended payment plan for telcos) is a positive for Infratel as it would put an end to tenancy consolidation, which has been affecting its performance for the past three years. Infratel would be able to grow its tenancies from FY21, putting behind tenancy cancellation due to operator consolidation," wrote Edelweiss analysts in June.
There are concerns that a weaker Vodafone Idea will be forced to close down its tenancies across the weaker markets which will impact both tower companies. Half of Vodafone Idea tenancies with Bharti Infratel are in its weaker C circles. A quarter of Indus tenancies of Vodafone Idea are spread across weaker circles. According to CLSA estimates, losing Vodafone Idea tenancies will cause Bharti Infratel’s revenue to be hit by 3-10%.
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