BCI, GIC and Brookfield Acquire Indian Telecom Towers

Private Capital Journal reports Brookfield and BCI close acquisition of telecom tower business from Reliance:

Brookfield Infrastructure Partners L.P. (NYSE: BIP; TSX: BIP.UN) and British Columbia Investment Management Corporation (BCI) have completed the previously announced acquisition of a 100% stake in a telecom tower company in India from Reliance Industrial Investments and Holdings Limited, a wholly-owned subsidiary of Reliance Industries Limited.(RIL).

Total equity investment will be approximately US $3.4 billion. Brookfield Infrastructure will be investing $600 million.

The telecom tower company owns a high-quality portfolio of approximately 135,000 recently constructed communication towers that form the infrastructure backbone of Reliance Jio’s (Jio) telecom business. Jio is an anchor tenant of the business under a 30-year Master Services Agreement, providing a secure, long-term source of revenue and incremental business plan tower build-out to drive growth that is expected to bring the portfolio to 175,000 towers in the near term.

Brookfield Infrastructure Partners put out this press release: 

Brookfield Infrastructure Partners L.P. (“Brookfield Infrastructure”) (NYSE: BIP; TSX: BIP.UN) today announced that it has completed the previously announced acquisition of a 100% stake in a telecom tower company in India from Reliance Industrial Investments and Holdings Limited, a wholly-owned subsidiary of Reliance Industries Limited (“RIL”). Brookfield and its institutional partners will be making an equity investment of approximately $3.4 billion, of which Brookfield Infrastructure will be investing $600 million.

Brookfield Infrastructure has acquired a high-quality portfolio of approximately 135,000 recently constructed communication towers that form the infrastructure backbone of Reliance Jio’s (“Jio”) telecom business. This portfolio provides a well-placed platform to capitalize on the rollout of 5G across the country, as the towers are largely connected by fiber backhaul. Jio is an anchor tenant of the business under a 30-year Master Services Agreement, providing a secure, long-term source of revenue and incremental business plan tower build-out to drive growth that is expected to bring the portfolio to 175,000 towers in the near term.

“We are pleased to have closed this transaction, which was one of our top priorities for 2020,” said Sam Pollock, Chief Executive Officer of Brookfield Infrastructure. “The acquisition of this large-scale, high-quality telecom tower business significantly expands and diversifies our Data Infrastructure segment and competitively positions us in India’s growing data industry.”

“We are confident in the long-term prospects for data sector growth in India,” said Anuj Ranjan, Managing Partner and Head of India and the Middle East for Brookfield. “We are looking forward to continuing to work alongside Reliance, which has established itself as a leading telecom and technology company in India. The recent investments by leading global technology companies and private equity investors in Jio is further testimony to the platform Reliance has built and their strength as our anchor tenant.”

Brookfield Infrastructure Partners is a leading global infrastructure company that owns and operates high-quality, long-life assets in the utilities, transport, energy and data infrastructure sectors across North and South America, Asia Pacific and Europe. We are focused on assets that generate stable cash flows and require minimal maintenance capital expenditures. Investors can access its portfolio either through Brookfield Infrastructure Partners L.P. (NYSE: BIP; TSX: BIP.UN), a Bermuda based limited partnership, or Brookfield Infrastructure Corporation (NYSE, TSX: BIPC), a Canadian corporation. Further information is available at www.brookfield.com/infrastructure.

Brookfield Infrastructure is the flagship listed infrastructure company of Brookfield Asset Management, a global alternative asset manager with approximately $550 billion of assets under management. For more information, go to www.brookfield.com.

BCI also put out a press release: 

British Columbia Investment Management Corporation, alongside Brookfield Infrastructure Partners L.P. and its institutional partners, have acquired a 100 per cent stake in a telecom tower company in India from Reliance Industrial Investments and Holdings Limited, a wholly-owned subsidiary of Reliance Industries Limited. The total equity commitment for the transaction is approximately US$3.4 billion.

The investment comprises a portfolio of around 135,000 communication towers which forms Reliance Jio Infocomm Limited’s (“Jio”) telecommunication network. The towers were recently constructed and strategically located for cellular network coverage across India. More towers are planned, increasing the total number of towers in the transaction perimeter to approximately 175,000, building a robust telecommunications market within the country. Jio is the anchor tenant of the tower portfolio under a 30-year Master Services Agreement, which will provide the tower company with a secure, long-term source of revenue.

“For BCI and our clients, this investment is well aligned with our long-term strategy of investing in high quality companies and assets that fulfill essential needs of the communities in which they operate,” said Lincoln Webb, executive vice president & global head of BCI’s infrastructure & renewable resources program. “Data services are increasingly critical to societies and economies in today’s world — promoting both opportunity for individuals and potential innovation for local communities. BCI is excited by the opportunity to invest in infrastructure that will play a vital role in enabling India’s continued economic growth.”

 About BCI

With C$171.3 billion of managed net assets as of March 31, 2020, British Columbia Investment Management Corporation (BCI) is one of Canada’s largest institutional investors within the global capital markets. Based in Victoria, British Columbia, BCI is a long-term investor that invests in all major asset classes including infrastructure and other strategic investments. BCI’s clients include public sector pension funds, insurance funds, and special purpose funds.

BCI’s infrastructure & renewable resources program, valued at over C$18.3 billion, invests in tangible long-life assets that include a portfolio of direct investments in companies across a variety of sectors spanning regulated utilities, energy, telecommunications, and transportation. These companies operate in stable and mature regulatory environments, provide opportunities for future capital investments, and have the potential to generate steady returns and cash yields for our clients. The program is diversified across North America, Asia, Australia, Europe, and South America.

And Reuters reports that Singapore's GIC, one of the largest sovereign wealth funds in the world, was also part of this deal:

GIC, Singapore's sovereign wealth fund, said on Tuesday (Sep 1) it and a group of investors, including Brookfield Infrastructure Partners LP, bought an Indian telecom tower company from a unit of Reliance Industries for US$3.4 billion.

The investment by the group is for around 135,000 communication towers used by Reliance's telecoms venture Jio Infocomm, GIC said in a statement. 

The deal was signed in December last year and had been awaiting regulatory approval.

Since then, Mukesh Ambani-controlled Reliance has been selling stakes in its digital unit to blue-chip companies, raising billions of dollars, to cut debt.

The finalization of the deal also marks a foray into the fast-growing telecom market in India, which, in recent years, has been upended by the launch of Jio, Reliance's telecom arm, whose cut-price packages have turned it into the country's biggest telecom carrier by subscribers.

With the number of people using the internet in the world's second-most-populous country rising, the infrastructure that would widen its accessibility is a key building block.

"The portfolio offers resilient income and long-term value given India's attractive data demand growth outlook as 4G and smartphone penetration is still very low," said Ang Eng Seng, GIC's chief investment officer for infrastructure.

The investment by the group is for around 135,000 communication towers used by Reliance's telecoms venture Jio Infocomm, GIC said in a statement.

"While we remain cautious in this period of high uncertainty, we continue to seek good, long-term opportunities in India," Seng said.

Mr. Seng is absolutely right, this is a period of high uncertainty but institutional investors with a long investment horizon and very deep pockets can capitalize on long-term opportunities in India.

GIC also put out a statement on LinkedIn:

GIC affiliates, alongside Brookfield Infrastructure Partners and other co-investors, have acquired a 100% stake in a telecom tower company in India from Reliance Industrial Investments and Holdings Limited, a wholly-owned subsidiary of Reliance Industries Limited. We are pleased to invest in this high-quality portfolio of telecom tower assets offering resilient income and long-term value, given India’s data demand growth outlook. This investment reflects our confidence in the telecom tower sector in India, where we have invested for over 20 years and continue to seek long-term #opportunities.

I mentioned this deal in my last comment covering how OMERS plans to ramp up exposure to Asia-Pacific infrastructure markets, but wanted to go over more in-depth in a follow-up comment.

The deal isn't new, it was announced back in December 2019 but closed now after regulatory approval. 

Back then, Brookfield Infrastructure Partners put out this press release:

Brookfield Infrastructure Partners L.P. (TSX: BIP.UN; NYSE: BIP) (“Brookfield Infrastructure”), alongside its institutional partners, is pleased to announce that it has entered into binding agreements to acquire a 100% stake in a telecom tower company in India from Reliance Industrial Investments and Holdings Limited (“RIIHL”), a wholly-owned subsidiary of Reliance Industries Limited (“RIL”). The total equity requirement is $3.7 billion, of which Brookfield Infrastructure will invest approximately $375 million, with the balance being funded by its institutional partners.

Brookfield Infrastructure is acquiring a portfolio of approximately 130,000 communication towers that forms the infrastructure backbone of Reliance Jio’s (“Jio”) telecom business. These are recently constructed assets that are strategically located for pan-India 4G coverage. These towers are well-positioned from a competitive perspective as they are largely connected by fiber backhaul, which provides a unique platform to capitalize on the rollout of 5G and future technologies. Jio is an anchor tenant of the tower portfolio under a 30-year Master Services Agreement, providing a secure source of revenues for the tower company.

“This is a unique opportunity to invest in a large-scale, high-quality telecom business and participate in India’s high-growth data industry,” said Sam Pollock, Chief Executive Officer of Brookfield Infrastructure. “This is an attractive business that offers downside protection with meaningful upside by co-locating equipment from other Mobile Network Operators on the towers, which to-date, have only carried Jio equipment. Further growth is anticipated through a tower build-out program, which is expected to bring the portfolio to approximately 175,000 towers.”

“We are pleased to be continuing our relationship with Reliance, following our successful Indian gas pipeline investment completed earlier this year,” said Anuj Ranjan, Managing Partner and Head of India and the Middle East for Brookfield. “Leveraging the strength of our partnership with Reliance, combined with the depth of Brookfield Infrastructure’s operating expertise, makes us well-positioned to execute on future growth for the business.”

Closing of the transaction is subject to certain regulatory approvals.

Why is this press release important? Well, it tells you Brookfield Infrastructure Partners had an existing relationship with Reliance, they obviously knew Mukesh Ambani, Asia's richest man, has been selling stakes in Reliance assets to cut debt.

When you're doing deals of this size and nature in a country like India, it pays to know the right people. Mukesh Ambani is certainly at the top of the list of anyone wanting to do deals in India.

It also helps that Brookfield Infrastructure is the best infrastructure fund in the world and is run by Sam Pollock, arguably the best infrastructure investor in the world.  

Mukesh Ambani wasn't desperate to sell these assets, he certainly got a fair price for them, and he's wise enough to sell them to a premiere fund like Brookfield who along with its partners, BCI and GIC, will develop these assets over the long run and capitalize on the rollout of 5G in India.

In short, this deal will allow these investors to be part of the country's growing data industry as more and more Indians enter the middle class and use their cell phones for everything, including watching sport events and e-commerce. 

And note what Sam Pollock stated in the December press release:

“This is a unique opportunity to invest in a large-scale, high-quality telecom business and participate in India’s high-growth data industry,” said Sam Pollock, Chief Executive Officer of Brookfield Infrastructure. “This is an attractive business that offers downside protection with meaningful upside by co-locating equipment from other Mobile Network Operators on the towers, which to-date, have only carried Jio equipment. Further growth is anticipated through a tower build-out program, which is expected to bring the portfolio to approximately 175,000 towers.”

And Lincoln Webb, executive vice president & global head of BCI’s infrastructure & renewable resources program, is spot on:

 “Data services are increasingly critical to societies and economies in today’s world — promoting both opportunity for individuals and potential innovation for local communities. BCI is excited by the opportunity to invest in infrastructure that will play a vital role in enabling India’s continued economic growth.”

It's also worth noting BCI ranked 9th in Infrastructure Investor's newly released Global Investor 50, a list of the largest institutional investors in global infrastructure. BCI is the only new entrant in this year's top 10.

By the way, there is intense competition in India for telecom towers.

Two years ago, American Tower (ATC) expanded its footprint in India through the completion of the acquisition of Indian carrier Idea’s tower business:

The local subsidiary of ATC has acquired a portfolio of around 9,000 towers in India for 40 billion rupees ($597.2 million). Idea said the portfolio of towers had a tenancy ratio of 1.80x as of September 2017.

India’s Department of Telecommunications (DoT) recently approved the transaction, according to Indian press reports.

The transaction was part of the anticipated merger between Indian carriers Idea and subsidiary Vodafone India, which is expected to create India’s largest telecoms operator with an estimated 430 million subscribers.

After this recent acquisition, ATC now operates some 68,000 towers across India. The company has already acquired Vodafone India’s portfolio of around 10,200 telecommunications towers. “We  closed on our acquisition of the Vodafone tower portfolio in India, at the very end of the quarter, adding over 10,000 sites to our portfolio and further solidifying our position as a leading independent tower operator in the market,” ATC’s EVP and CFO Tom Bartlett said in a previous conference call with investors.

Under the terms of the deal, ATC’s majority-owned subsidiary in India, also known as ATC Telecom Infrastructure Private Limited or ATC TIPL, will have both Idea and Vodafone India as customers.

Idea Cellular added that after the completion of the merger with Vodafone India, 6,300 co-located tenancies of the two operators on the combined tower portfolio will turn into single tenancies over a period of two years without the payment of exit penalties.

“Both Vodafone India and Idea Cellular as customers, and ATC as a vendor, have agreed to treat each other as long term preferred partners, subject to existing agreements,” Idea said.

The sale of Vodafone India’s towers doesn’t take Vodafone out of the tower market in the Asian country, however. Vodafone still has a 42% stake stake in Indus Towers, which is the world’s largest tower company with a portfolio of more than 120,000 towers; that stake was not part of the Vodafone India/Idea merger deal.

In April, Indus Towers and Bharti Infratel had agreed to merge their operations in a deal that will create the world’s second-largest mobile towers company

The new company will have 163,000 towers across 22 telecom service areas in India. The entity will have an estimated equity value of $14.6 billion. The world’s largest tower company is China Tower, a joint venture established by China Mobile, China Unicom and China Telecom.

The new firm will own 100% of Indus Towers, which is currently owned by Bharti Infratel (42%), Vodafone (42%), Idea Group (11.15%) and Providence Equity Partners (4.85%).

I'm sharing this with you so you can appreciate that there are big global companies and funds all vying for Indian telecom towers.

In any case, this is a great deal for BCI, GIC and Brookfield, although we don't have details about how much money GIC and BCI are putting into this deal.

Brookfield is putting $600 million of the US $3.4 billion so I can only speculate that BCI and GIC are ponying up an equal amount (in equity) and the partners are financing the rest through debt (don't quote me on these figures as I am speculating but that is my best guess).

Lastly, I read that Brookfield recently raised US$23B and expects to ramp up pace of deals:

Brookfield Asset Management Inc. said it raised a record US$23 billion during the second quarter and expects to accelerate the pace of investments after the disruption caused by COVID-19.

The Toronto-based alternative asset manager said it has US$77 billion in cash, securities and other available capital, including uncalled capital commitments from clients. That figure includes US$12 billion raised in its latest distressed debt fund by its Oaktree Capital Management unit. When that fund is closed, it should be the largest ever raised for distressed debt investing, Brookfield Chief Executive Officer Bruce Flatt said in a letter to shareholders.

“While we do not expect full recovery of the global economy until well into 2021, we believe the worst is over, and our own businesses are slowly recovering,” said Flatt. “We have been keeping our powder dry, waiting for opportunities we believe will come.”

Flatt said that while the quarter was busy for raising capital, its three flagship funds are now 50 per cent committed and that the firm expects to start raising money again for their next vintages in 2021.

“We are being patient with our capital, but we expect the pace of investment to increase over the next 12 months as opportunities present themselves,” Flatt said.

The market disruption hurt Brookfield’s earnings during the quarter, with some businesses recording no income, Flatt said. The company took writedowns of US$978 million, largely in its real estate portfolio, that contributed to a second quarter loss of US$656 million, or 43 cents per share.

Its funds from operations were US$1.16 billion during the quarter, up nearly five per cent from the same period last year.

“The good news is that those operating businesses that were impacted are now all recovering, and the balance of the year should be better,” Flatt said.

Flatt said he does not believe the COVID-19 outbreak will permanently impact urbanization trends, despite what some are predicting. He said video conferencing and internet connections have allowed people to work from home during the crisis but, ultimately, it won’t work over the longer term because people are social beings.

“The same arguments about distanced working were made when the automobile became ubiquitous, the telephone allowed transcontinental conversations, and the internet enabled online communication. None of these has changed the fact that people favor being in cities and in offices,” Flatt said.

“In fact, quite the opposite has always been true in past. These communication tools historically enhanced great cities and offices rather than supplanting them. We think this will play out the same way this time as well.”

Bruce Flatt is one smart cookie and while I agree with his points, I also think he's underestimating the paradigm shift going on in real estate.  

Just today, I read that another tech giant, Shopify, is set to vacate its 170,000- square-foot Elgin Street headquarters as part of a plan to consolidate its Ottawa operations at an office tower on nearby Laurier Avenue. That's a lot of office space to absorb but maybe Brookfield will put in a bid, who knows.

All I'm saying is there's a reason why sovereign wealth funds are rethinking once-reliable real estate, and while Bruce Flatt will likely turn out to be right, he might not be as right as he thinks (but I don't fault the man for talking up his book).  

Oh, before I forget, the mystery of Mark Carney’s next job is solved. The former Bank of England and Bank of Canada Governor will join Brookfield as vice chairman and steer its environmental, social and governance (ESG) investment strategy:

Bruce Flatt, Brookfield’s chief executive officer, said in an interview he expects the new ESG group could eventually grow to the size of its real estate, infrastructure, and private equity businesses. Carney will be instrumental in that expansion because of his strong relationships with sovereign wealth funds and his range of business experience, Flatt said.

No doubt, Carney is a heavyweight and will fit nicely at Brookfield.

Below, in October 2019, Bruce Flatt, CEO of Brookfield Asset Management, and Ron Baron, Baron Capital chairman and CEO, joined CNBC's Becky Quick at the Baron Investment Conference to discuss the rise in real assets in an ultra-low rate world. Listen carefully to what Flatt said about long-term opportunities in India and why infrastructure remains a great long-term asset class.

I also embedded a 2017 clip from Zee Business which discusses how Indus Towers, India's largest telecom tower company is expanding continuously. Take the time to listen to the insights here and you'll understand why BCI, GIC and Brookfield just closed a great long-term deal.