Bharti Airtel is seeking permission from its shareholders to transfer its data center and managed services (DCMS) business to a subsidiary company. The company’s board had given its permission for the transfer in July.
The company is transferring the DCMS business to Nxtra Data, a 100% subsidiary. The transfer will be done at an enterprise valuation of Rs 177.1 crore, after reducing the liabilities of the business. The postal ballot notice does not specifically mention the mode of consideration being cash. It may be an issue of shares by Nxtra in lieu of cash consideration.
The DCMS business offers a whole host of services, such as co-location and managed services, and runs seven data centres with about 150,000 square feet of what it calls ‘potential revenue generating space’. The company said that demand is expected to increase due to rising demand for remote computing, storage and security services and cloud services.
The reason to shift this into a separate business entity is to give it focus, build scale and customise products for customers. Apart from achieving better focus, expanding scale in the data centre business means sizeable capital investments. It also does not directly fit with Bharti Airtel’s core business of providing telephony services.
But the transfer to a 100% subsidiary is likely to be only the first step. Later, it may raise capital in Nxtra to fund its expansion, without straining its own resources. A separate subsidiary gives it the flexibility to bring in an investor specifically for the data centre business. The business transfer is expected to be effective from October 1, 2013.
The postal ballot is available here.