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Asia300

Bharti Airtel alters plan to sell stake in tower unit after stocks plunge

MUMBAI (NewsRise) -- Bharti Airtel, India's largest mobile phone company, has dropped its plan to sell a controlling stake in unit Bharti Infratel after the mobile tower operator's shares plunged following talks of a potential merger between two of its main tenants.

"The board has...decided not to monetize controlling stake in Infratel for now," Bharti Airtel said in a statement. The company, backed by billionaire Sunil Bharti Mittal, is pursuing the sale of a minority stake in the unit instead.

Bharti, which owns 72% of Bharti Infratel, had set up a panel of board members in October to evaluate options for monetizing "a significant" stake in the unit. According to local media reports, Bharti has been in discussions with several potential buyers, including Canada's Brookfield Asset Management and private equity firms KKR & Co., Blackstone Group and Canada Pension Plan Investment Board.

Infratel's main customers include the top three Indian mobile phone companies - Bharti Airtel, the local unit of the U.K.'s Vodafone, and Idea Cellular. In January, Vodafone said its Indian unit is exploring a merger with smaller rival Idea in a potential share swap deal. According to analysts, a merger would significantly affect Bharti Infratel's tower tenancy as Vodafone and Idea are two of its three main tenants.

Infratel shares took a deep dive after the Vodafone announcement, shedding as much as 14% in just one day to touch a 52-week low of 283.10 rupees. Though the stock has since pared some of the losses, it is still trading 23% lower than the October high of 399.40 rupees. Analysts cite the plunge in valuation as one of the main reasons for Bharti Airtel's move to rethink on the stake sale.

Bharti Airtel's board has decided to undertake a sale or transfer of up to 400 million shares in Bharti Infratel to its unit Nettle Infrastructure Investments or to any other potential investors in separate tranches at a future date, the company said. The sale will be at the market price prevailing at the time of the transaction, it said.

After the share transfer, Bharti Airtel will own 50.33% in Infratel, while Nettle Infrastructure will own 21.63% stake in the tower company, it said.

Bharti's move to sell the stake came in the backdrop of cutthroat competition in India's telecom market, triggered by the entry of Jio Infocomm, a venture backed by billionaire Mukesh Ambani's Reliance Industries. Jio, which started operations in September, is offering free voice calls and data services, stirring a price war in one of the most competitive mobile phone markets in the world.

Most Indian mobile phone companies are seeking to bulk up their war chest to fend off Jio's competition. Ambani is pumping in 2.50 trillion rupees ($38 billion) with a goal to capture half of India's wireless telecom market by 2021. Bharti had last year said it plans to invest 600 billion rupees in upgrading its network infrastructure. Last year, it spent almost $1 billion to acquire smaller rivals to expand its fourth-generation Internet footprint in the country.

Consolidation in the industry, steps taken by companies to save costs by infrastructure sharing, and rising competition are putting pressure on Bharti Infratel's premium rentals, Nomura said in a report last week.

"The prospect of a merger of Vodafone India and Idea entails a medium-term earnings risk for the company," Nomura said.

Shares of Bharti Airtel lost 0.80%, while that of Bharti Infratel gained 0.15% in Mumbai trading. The benchmark S&P BSE Sensex rose 0.64%.

--Dhanya Ann Thoppil

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