Tata Communications sells Neotel to Africa’s Liquid Telecom

Tata Communications Ltd has finally reached a deal to sell its South African unit Neotel Pty Ltd to Liquid Telecom Group for 6.55 billion rand (around $430 million), after striving for more than two years to dispose of the unit.

Liquid Telecom, majority-owned by Econet Wireless Global, is partnering with Royal Bafokeng Holdings (RBH), a South African empowerment investment group, which has committed to taking a 30% equity stake in Neotel, Tata Communications said on Tuesday.

The transaction would advance an asset-sale push by Tata group, which is seeking to pare debt and boost profit. Tata Steel Ltd, Tata Power Co. Ltd and Indian Hotels Co. Ltd, which wants to sell its Taj Boston hotel, are among group firms looking to dispose of non-core assets.

Investors cheered the announcement. Shares of Tata Communications ended 2.44% higher at Rs.460.55 on the BSE after rising to as much as Rs.486 in intra-day trading. The Sensex rose 0.46% to 26,524.55 points.

“The transaction, which is subject to obtaining all affirmative approvals and other corporate approvals that may be required by the shareholders of Neotel and other regulatory approvals, is transformative and will create the largest pan-African broadband network and B2B (business-to-business) telecoms provider,” Tata Communications said in a statement.

“Through a single access point, businesses across Africa will be able to access Liquid Africa’s 24,000km of cross-border, metro and access fibre networks. These currently span 12 countries from South Africa to Kenya, with further expansion planned,” the statement said.

The transaction is expected to be completed later this financial year.

An earlier deal by Tata Communications to sell Neotel to Vodacom SA, a unit of Vodafone Group Plc., lapsed in March due to regulatory issues. On 10 December, Tata Communications had said that it will sell the fixed-line assets of Neotel to Vodacom in a revised deal that excludes Neotel’s wireless spectrum and licences. The deal hung fire for more than two years amid regulatory battles and legal opposition to the deal by competitors.

“Leveraging the strengths of RBH, Neotel and Liquid Telecom will offer an unprecedented fibre network with a unique set of services and international connectivity for telecom operators and enterprises across sub-Saharan Africa,” said Nic Rudnick, Liquid Telecom’s chief executive officer.

“We will also be increasing investments into Neotel to cater for rapidly accelerating mobile and enterprise traffic, enabling us to launch exciting new products and services,” Rudnick said.

Vinod Kumar, managing director and chief executive officer of Tata Communications, said Liquid Telecom was an ideal partner for the next phase of Neotel’s evolution.

“Convergence of technologies and services will be the key driver of growth across the globe and this transaction will encourage inclusion and support the growth aspirations of the African continent. We believe that Liquid Telecom will deliver on the vision of a well-connected Africa, which will augur well for the South African telecom industry and Neotel’s customers,” said Kumar.

In a report released on Tuesday, IDFC Securities Ltd said the deal would help significantly reduce Tata Communications Ltd’s consolidated net debt to Rs.6,500-6,700 crore from Rs.11,500 crore as of March 2016. FirstRand Bank, the only South African Bank in India, advised Tata Communications on this deal.

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