Bharti to shed 10% in Infratel for $1.1 bn

Bharti Airtel is learnt to be in talks to sell around 10% in its hived tower company—Bharti Infratel—to a private equity (PE) player for about $1.1 billion. India’s largest private telecom company has been in talks with two leading PE players—Singapore government’s investment arm Temasek and US-based Warburg Pincus—for the deal.

Bharti is currently in the process of transferring its mobile telecom towers and related infrastructure to Infratel, its wholly-owned subsidiary. This March, the company had about 40,000 towers and is currently in the process of doubling the number by the fiscal end, as part of an ongoing $3.5-billion expansion plan.

The company has seen around 90% growth in subscribers from 19.6 million in FY06 to 37 million in FY07. Last week, the company announced that its subscriber base has crossed 50 million.

Last week, Bharti Airtel’s joint managing director Akhil Gupta told that the company was exploring private placement options, adding that the tower arm’s demerger would be completed soon. “We can also list Infratel in future.

However, the primary aim of hiving the physical infrastructure is not to unlock value, but to improve efficiency of our operations and also share it with other players. In the process, if we can also unlock value, we are open to it,” Mr Gupta had added.

Bharti’s move to unlock value in its tower arm follows that of R-ADAG-owned Reliance Communications, which recently completed the private placement of 5% in its telecom infrastructure company—Reliance Telecom Infrastructure (RTIL)—for Rs 27,000 crore ($6.75 billion). RTIL had offloaded this stake to seven foreign financial investors for a total Rs 1,400 crore ($337.5 million).

Incidentally, Bharti’s tower arm is more than twice as large as RCOM’s. Industry sources share the view that this, coupled with the company’s massive expansion plans, the valuation enjoyed by Bharti Infratel would be well over $11 billion. Analysts also say Bharti may push for a small stake sale in Infratel to discover valuations before launching a bigger sale.

Earlier this year, Bharti had given Temasek Holdings the option of picking up an indirect 4.99% stake in Bharti Airtel. On July 3, when the transaction was announced, the value of the 4.99% stake, based on that day’s market price, was just under $2 billion.

Warburg too is no stranger to Bharti; between 1999 and 2001, the PE firm had invested $292 million in Bharti Tele-Ventures. And when it finally exited in October 2005, Warburg’s total realisation was $1.6 billion—more than 5.5 times its investment.