TOKYO -- U.S. private equity firm TPG has finalized a deal that marks its most ambitious investment in Myanmar and the biggest consolidation yet in the country's fast-growing telecommunication infrastructure sector.
Under an agreement that gained Naypyitaw's approval last month but has yet to be announced, TPG, majority owner of Apollo Towers Myanmar, the country's second biggest telecom tower company, will acquire Apollo's key rival Pan Asia Majestic Eagle, a 100% foreign-owned Yangon-registered company and the third largest tower owner.
Through a two-step cash and share swap transaction, TPG will create a holding company with common ownership of both Apollo and Pan Asia. Currently, Apollo has about 1,800 towers in Myanmar and, with Pan Asia's 1,200 towers, the holding company will be ahead of the current market leader, Irrawaddy Green Towers, a Middle Eastern-owned company with about 2,500 towers. Including the combined debt of the two companies, the enterprise value of the new entity will be just under $1 billion, according to people familiar with the deal.
The deal is the third Myanmar transaction for TPG, which holds the record for the country's largest private equity exit -- the sale of its 50% stake in Myanmar Distillery Co. in late 2017 to Thai Beverage for $494 million. TPG bought the stake for $150 million in December 2015.
Following TPG's 100% cash acquisition of Pan Asia and restructuring through a share swap with Apollo's minority stakeholders, TPG will end up with indirect ownership of both companies. The U.S. firm, which co-founded Apollo Towers with an initial investment of about $40 million in 2014, will eventually hold 80% to 85% of the new entity.
TPG's minority partners in Apollo -- co-founder U.S.-based Tillman Global Holdings and Myanmar Investments, the first Myanmar-focused investment company to list on the AIM market of the London Stock Exchange -- will halve their Apollo shareholdings to end up with just under 7% of the new entity. MIL invested $21 million in a 13.5% stake in Apollo in 2016. The remainder of the new company will be held by management and secondary investors.
Despite concerns that Western investors may shun Myanmar amid the international outcry over the Rohingya crisis -- military operations that drove more than 800,000 minority Muslim Rohingya refugees into neighboring Bangladesh last year -- the telecoms business has sustained strong investment interest.
In mid-2016, the U.S. government's development finance arm, the Overseas Private Investment Corp., granted a $250 million loan to Apollo, citing the critical role of telecoms infrastructure in the country's development, particularly in rural areas.
Underscoring Opic's involvement with Apollo, TPG's latest deal highlights the shifting nature of investment interest in Myanmar, from what one private equity executive called a "pure profit focus toward more geostrategic priorities" that target development-focused sectors.
Over the past year, a number of Western development finance institutions, including the U.K.'s CDC Group, the World Bank's private equity arm IFC, and Dutch and Norwegian government-backed funds have joined a wave of fundraisings among Myanmar-focused private equity groups, including most recently Anthem Asia and Delta Capital.
Telecommunications is among the few sectors in Myanmar with solid growth prospects, having opened early in the country's post-junta period to foreign entrants in 2012 under the government of President Thein Sein. On top of more than 14,500 existing towers as of mid-2018, industry experts estimate that Myanmar needs to add at least 8,000 to 9,000 towers in coming years amid soaring smartphone penetration, declining tariffs and the recent entry of a fourth telecoms operator.
Mobile phone penetration since 2012 has risen above 113% in the country of 53 million people. About 77% of the population were able to access wireless internet services in 2017, up from 1.1% in 2010, according to Myanmar government data.
The TPG deal comes amid rapid consolidation in the crowded tower sector, where more than 20 independent tower owners are vying for contracts. In June, Singapore Myanmar Investco agreed to sell its tower construction business TPR Myanmar to New York-based Tiger Infrastructure Partners for $10.8 million. Also this year Malaysian state-owned Edotco Group, one of Myanmar's largest tower operators, acquired the energy assets and management of 1,250 telecom tower sites from Qatar's Ooredoo Myanmar.
Apollo currently provides services to all four licensed operators in Myanmar: Telenor of Norway, Qatar's Ooredoo, state-owned Myanma Posts and Telecommunications, and the newest entrant MyTel, a joint venture between a local consortium of 11 private companies and Viettel, a Vietnamese state-owned company run by the country's defense ministry, which began services in June.
The TPG deal also comes after Myanmar's implementation of investment and companies laws intended to encourage foreign investors. The companies law, implemented in August, entitles foreign companies for the first time to buy stakes in Myanmar companies.
TPG declined to comment, but some local analysts with knowledge of the deal welcomed TPG's transaction as a timely example of urgently needed consolidation in more troubled business fields.
These include, in particular, airlines, where several domestic carriers have closed down in recent months, and banking, which is struggling amid mounting bad debt and excessive competition.
"This is an example of the sort of consolidation that is badly needed in other sectors," said a Yangon-based investment consultant. "Fewer, but larger, more efficient and better capitalized companies will inevitably attract more investors."