Bharti Airtel has entered an agreement with Vodafone Group to purchase 4.7% stake in Indus Towers for an undisclosed amount. The transaction will be a cash consideration, the Sunil Mittal-led telecom major told the exchanges on Friday.

The deal comes with a stipulation to help Vodafone Idea, which is the weakest of the three incumbents in the Indian telecom industry. Airtel said the transaction has a “principal condition that the amount paid shall be inducted by Vodafone as fresh equity in Vodafone Idea Limited (VIL) and simultaneously remitted to Indus Towers to clear VIL’s outstanding dues”.

“The said acquisition purchase would be at an attractive price representing a significant discount typically available for such large block transactions. In addition, Airtel is also protected with a capped price which is lower than the price for the block of Indus shares sold by Vodafone on February 24, 2022. This shall be value accretive to Airtel and protect its existing significant shareholding in Indus Towers,” Airtel said in the exchange filing.

“Any such acquisition shall only be done when such proceeds are confirmed to be utilised by Vodafone to infuse as equity into VIL including any regulatory or shareholders’ approval being fully obtained,” it further added.

In an announcement late on Thursday, Vodafone Group had stated that it will sell partial stake in telecom tower provider Indus Towers.

“Vodafone announces that it has launched a placing of 63.6 million Primary Shares in Indus through an accelerated book build offering. This represents 2.4% of Indus' outstanding share capital,” the U.K.-based telecom major said in a statement.

Vodafone Group currently holds 757.8 million shares in Indus Towers, equivalent to a 28.1% shareholding. Of this, 190.7 million shares, equivalent to a 7.1% shareholding (primary shares), are currently pledged to Indus Towers as part of the security arrangements finalised between the two companies at the time of the merger of Indus Towers with Bharti Infratel.

Vodafone had also mentioned that it is in advanced discussions with “one of the largest shareholders in Indus” for the purchase of up to 127.1 million shares from Vodafone, amounting to 4.7% of outstanding share capital. This represents the remaining balance of primary shares. Now that the stake sale has been finalised, with Airtel emerging as the shareholder in question, Vodafone would retain 567.2 million shares in Indus, or a 21% stake.

The security arrangements between Vodafone and Indus have already been modified to facilitate the sale of pledged primary shares to Airtel, as well as use the proceeds to issue new shares by Vodafone Idea (Vi).

“The modified terms will continue to provide security to Indus for an equivalent amount of payments by Vi under the Master Services Agreements. Any residual proceeds from the sale of the Primary Shares that are not used by Vodafone to subscribe for new shares in Vi will be available to Indus until November 19, 2022 to guarantee Vi's obligations under the Master Services Agreements,” informed Vodafone.

The British telco further said that it is also exploring a potential sale of the residual shareholding with several interested parties.

The timing of the deal holds significance as it comes shortly before the 5G auctions in the country. “With the likely introduction of 5G in the future, we believe a lot more infrastructure would be required in which Indus Towers, an undisputed leader, has a significant role to play and partake in the potential growth in the business,” Airtel said.

“The stability and sustenance of a specialised and strong infrastructure company like Indus Towers is vital for a continued strong provision of co-location services including the support to 5G rollout. Such stability warrants a strong and stable shareholding structure to ensure financial stability and flexibility to respond to evolving needs of telecom operators,” it added.

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