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Airtel and Voda Idea in talks to turn fibre JV into infra investment trust

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Airtel and Voda Idea in talks to turn fibre JV into infra investment trust

The move is aimed at reducing debt to free up cash to compete with Reliance Jio Infocomm..

Bharti Airtel and Vodafone Idea are in advanced talks to turn their proposed optic fibre network joint entity into an infrastructure investment trust (InvIT) that can attract long-term investors. The move is aimed at reducing debt to free up cash to compete with Reliance Jio Infocomm.

“The two companies are likely to announce their optic fibre combined entity by the end of this month which will be an InvIT since it has many benefits such as pushing some debt off the books of the two telcos,” said a person aware of discussions between the phone companies. “The InvIT structure is also an attractive proposition for investors such as global pension funds given the regular income and the tax benefits on the income.”

InvITs are trusts that manage income-generating infrastructure assets, similar to mutual funds, that enable participation by individual and institutional investors in return for a portion of the income.

Under the proposed merger, Vodafone Idea’s 156,000 route km of optic fibre and Airtel’s 246,000 km will result in a network of 400,000 route km, more than Mukesh Ambani-owned Jio’s 300,000 km. The Airtel-Vodafone Idea optic fibre entity is valued at Rs 35,000-40,000 crore.
“While the share in the entity will be proportionate to the assets the two sides bring, giving a larger share to Airtel, both partners are likely to have equal rights,” the person cited above added. As reported earlier by ET, Vodafone Idea had been pushing for equal rights on the basis that it had more fibre in metros and category A towns.

While Bharti Airtel has already transferred its optic fibre assets into a wholly-owned unit, Vodafone Idea said on Saturday its shareholders and creditors had approved a proposal to transfer its optic fibre assets to a wholly-owned subsidiary, Vodafone Towers. That will pave the way for the optical fibre merger with Bharti Airtel.
Vodafone Idea’s leadership had earlier said that the company will explore all possible options to optimize the fibre assets.

Bharti Airtel declined to comment while Vodafone Idea didn’t respond to an e-mail seeking comment.
“Approval of assets to InvITs potentially deleverages the balance sheet and creates an income stream for the unit holders arising from future rentals that the optic fibre company would receive from the telecom company,” said tax expert Ketan Dalal, managing partner at Katalyst Advisors. “This is possibly a key advantage of transfer to InvITs.”

The moves come close on the heels of Jio transferring its tower and fibre assets to two special purpose vehicles (SPVs) owned by Sebi-registered InvITs. In April, Jio’s parent Reliance Industries (RIL) announced the two trusts had acquired 51% each in Jio’s fibre and tower units — Jio Digital Fibre (JDFPL) and Reliance Jio Infratel (RJIPL). The trusts are sponsored by RIL’s 100% subsidiary, Reliance Industrial Investments and Holdings (RIIHL).

The new structure helped Jio slash debt on its books by Rs 1.07 lakh crore to Rs 65,000 crore in the quarter ended March by transferring this to the InvITs. Similarly, Bharti Airtel and Vodafone Idea are expected to transfer proportionate debt from their balance sheets to the InvIT.

Bharti Airtel, which posted an operating loss of Rs 89.8 crore before interest and taxes for its India operations for the quarter ended March, recorded net debt of Rs 1.08 lakh crore, driving up finance costs. Vodafone Idea posted a net loss of 4,878.3 crore for the quarter and recorded a net debt of Rs 1.18 lakh crore.

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