Leaning towers of GTL Infrastructure

It is a tale of two deals: One completed and the other, announced and later aborted. Monday's mysterious crash of the GTL Group shares could have its origin in the deals, said analysts.

Exactly a year ago, on June 17, 2010, GTL infrastructure announced that the Madras high court had cleared its Rs 8,400-crore (Rs 84 billion) acquisition of the towers business of Aircel.

Within days, it announced it would merge with Anil Ambani's tower company Reliance Infratel valuing the latter at Rs 50,000 crore (Rs 500 billion).

The Reliance deal would have created a combined entity with close to 82,000 towers, making it the second largest tower company in India.

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The deal would also have accelerated the progress of GTL towards its stated goal of 100,000 towers by 2013.

But the GTL-RCom deal fell through subsequently for undisclosed reasons.

Today, while GTL Infra is laden with the daunting task of servicing its huge debt, it is well short of its ambition in the race to scale and size.

Though the Aircel deal brought in 17,500 towers, it still has only 10 per cent share of the market with around 32,500 towers. With raising interest costs and inability to raise new cash, break-even looks far away.

"The company is highly levered. On a consolidated basis, it has a debt of Rs 10,000 crore (Rs 100 billion) on its books after the Aircel Towers acquisition. The financials don't look that great," said an analyst who has been closely monitoring the company.

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To add to it woes, the company is likely to face redemption of $300 million foreign currency convertible bonds.

GTL Infra had issued $300mn zero coupon FCCBs at par in November 2007, which are due for redemption in November 2012. Out of these, $228.3 million bonds are currently outstanding.

"In our opinion, the prospects of FCCB conversion are very low; they will likely be redeemed for cash in November 2012 and the company will have to pay a 40 per cent premium and raise additional debt," said Gaurav Surana and Gaurav Tyagi of Alchemy Capital in a recent report. According to them, this will put further pressure on the company's leverage ratios.

Monday's fall makes the possibility of a conversion even more remote because the stock has to multiply three-four folds for that to happen.

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The Alchemy analysts also expressed concerns about the company's ability to service existing debt.

The interest coverage (EBIT- interest) ratio for FY12 stood at less than half.

"A low-interest coverage ratio makes the company vulnerable... Any slowdown in free cash flow generation will have significant impact on the company."

While GTL infrastructure owns the assets and earns rental income, GTL sells the equipment and offers other services to operators.

The company in its statements has played down the fall in stocks as pure speculation.

"It is a hugely speculative attack on both the companies.

It has happened in the past too. It is not appropriate for me to comment on these issues. We focus on our business and our business runs as normal," Manoj Tirodkar, CMD, GTL told TV channels.

Tirodkar, a first-generation entrepreneur, said the company Website, is "widely credited with pioneering an integrated telecom play based on Network Services and Telecom Infrastructure".

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The Global Group has seven operating companies, two of which are listed on Indian stock exchanges.

Though his direct holding in the companies is minuscule or nil, Tirodkar controls both GTL and GTL Infrastructure through his holdings in Global Holdings corp Pvt Ltd.

The chairman is not new to controversy.

Having started GTL in 1987 as a 23-year-old, Tirodkar shot to fame as his stock Global Telesystems became the darling of the markets during the dotcom boom in 2000-01.

It had later emerged that the stock was part of a group of securities whose prices were artificially inflated by the now banned operator Ketan Parekh.

Whispers about a KP hand in Monday's fall refused to die down. Even on Monday, analysts hinted that promoter action could be crucial.

Deepak Mohoni, CEO, trendwatchindia.com said: "Ideally, if promoters are confident about the business, they should buy and support the share price. That doesn't seem to be happening."

Tirodkar, however, attributed the company's inability to raise money to the problems of the sector.

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Analysts also did not rule out market concerns over the Aircel connection.

The Malaysian company which owns Aircel has come under scrutiny after reports of CBI investigating the company in the 2G scam.

Meanwhile, the bulk deal data on the stock exchanges showed that seven private holding companies - Green Ridge Properties, Cosmo Advisory Services, Reckon Trading, Aerolite Advisory Services, Cross Link Trading, Plasma Advisory Services and Savyasachin Estates - sold 5.16 million shares between them.

This is roughly 40 per cent of the total delivery volume of the 12.8 million shares on Monday.