India's Reliance Communications, the internet access and telecommunications company headquartered in Mumbai, India, is selling its mobile phone tower business to Brookfield, a Canadian asset management giant, for $1.6 billion, it was reported on December 21, 2016. The deal represents the largest investment by a foreign company in Indian infrastructure, according to Reliance. Brookfield reportedly seeks to capitalize on liquidity constraints at major Indian firms.
According to a report by Bloomberg, Indian companies are struggling to acquire capital as the central bank puts pressure on lenders to address bad loans. Firms are said to be choosing asset sales to boost coffers and reduce debt, says the report.
Reliance Communications, led by Indian billionaire tycoon Anil Ambani, said in a statement to the Bombay Stock Exchange that it was announcing the 'signing of binding agreements' with Brookfield Infrastructure to sell its mobile phone towers for 110 billion rupees. In the statement the company said: 'The transaction will represent the largest ever investment by any overseas financial investor in the infrastructure sector in India.'
The reason why Reliance is selling its tower business, which ties into its recent merger with Aircel, is to help reduce its overall debt by about 70 percent, according to the company. After the announcement, Reliance's shares on the BSE's Sensex soared by almost nine percent.
Reliance's tower company will now become a separate company owned by Brookfield, but the Indian company says it would benefit from non-voting shares. In a statement Reliance said: ""The company expects significant future value creation from these class B shares owing to the 4G rollout and the expected growth of the telecom industry.'
This refers to India's current 4G revolution taking place, as the country's telecoms market becomes increasingly competitive. Major players in the market include Vodafone, Idea, and Reliance Jio, which is owned by Anil Ambani's older brother Mukesh, and also Bharti Airtel vie for dominance. According to a report by Bloomberg, Brookfield was originally in talks to take over Bharti Airtel's wireless tower business, Bharti Infratel.
The Reserve Bank of India is currently forcing banks to clean up their balance sheets. Brookfield signed a deal with the State Bank of India earlier this year and last month its South Asia head told Bloomberg that the asset management firm had struck a $1 billion agreement with Indian commercial property firm Hiranandani Developers Pvt.