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MTNL to divert realty, towers into new arm
State-run telecom company MTNL, which runs fixed-line and mobile networks in India’s top two telecom markets of Mumbai and Delhi, is examining plans to hive off its real estate and mobile towers worth more than Rs 6,000 crore to fund its expansion into new areas, according to a company official and a consultant familiar with the firm’s thinking.

MTNL is facing challenges to grow revenues now, as the mobile market is saturated in the two metro markets and the company is also seeing a fall in landline connections. The plan to separate the towers and real estate assets into a new entity, which can be sold or listed separately on the market, will help it raise much-needed funds for diversifcation, said the consultant, who has held discussions with the company on the issue.

A top MTNL executive confirmed the hive off plans, but said a final decision on this issue would be taken by the company’s board. The executive, who asked not to be named, refused to divulge when MTNL’s board would take up this proposal.

MTNL, together with larger state-run peer BSNL, plans to build and operate undersea links to connect India to West Asia and Singapore at an estimated cost of about Rs 1,800 crore. It also requires funds to expand and acquire telecom operations outside India, which it has been keen to do as it cannot operate anywhere else in India under a government mandate that restricts it to just Mumbai and Delhi.

In the past three years, MTNL bid for businesses and licences in Asia and Africa, but being limited by funds, it was unable to bid aggressively and lost out. It lost the bid battle to acquire Telekom Kenya and also failed to win mobile licences in Saudi Arabia, Qatar, Bhutan and several other countries.

While all leading mobile operators have hived off their towers and related telecom infrastructure to raise funds and gain better efficiencies, MTNL, which had 4.3 million mobile users and 3.5 million fixed-line customers at end-January this year, will be the first to include its real estate assets too in any hiving off plans.

The company has 1,250 towers in Mumbai and Delhi, each of them valued at between Rs 1-1.3 crore, according to three telecom analysts that ET spoke to. Its real estate assets in the two cities is estimated to be between Rs 4000-5000 crore, and together the telecom company’s real estate and towers could easily be worth more than Rs 6,000 crore, substantially worth more than its Rs 3,962 crore market value.

Analysts say MTNL is unlikely to be impacted by the falling valuations for mobile towers in the past six months. The Tata-Quippo tower deal earlier this year valued each tower at around Rs 60 lakh each, but Bharti Airtel and Reliance Communications got valuations of between Rs 1.2 crore and Rs 1.6 crore apiece when they offloaded stakes in their tower arms to buyout groups.

In December 2007, Bharti sold a 9% stake in its Bharti Infratel tower unit to a clutch of investors led by Singapore’s Temasek Holdings for about $1 billion and valuing the tower company at around $12.5 billion.
“MTNL is likely to enjoy valuations similar to that of Bharti and RCOM on account of two factors.

First, its towers are located at prime locations in Delhi and Mumbai. Second, in many zones in these metros, setting up new or additional towers is banned. So, new entrants and some existing operators have no option but to share MTNL’s infrastructure,” said one executive who works at a rival firm and tracks the tower business closely.

Hiving off real estate will be a deviation from MTNL’s earlier strategy of developing its land holdings into IT parks and leasing them to software, BPO and KPO companies. The company, which has previously looked at sharing rentals with developers, is already developing an 80,000 sq ft IT park in Noida called Core Knowledge Park. It is also in the process of finalising plans to develop a 1 lakh sq ft plus property in Mumbai.

Shares in MTNL closed at Rs 62.9 on the BSE on Monday, up 2.44% on its previous close.

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