KKR-backed Pinnacle halts $300m bet on Bangladesh mobile tower operator

Infographic: TBS

Pinnacle BD Holdings, a Singaporean firm backed by New York-based private equity giant Kohlberg Kravis Roberts (KKR), has reversed its decision to invest $300 million in Frontier Towers Bangladesh, one of the four mobile tower operators in the country.

Pinnacle cited a range of economic risks in Bangladesh, including the downgrade in the country's credit rating, rising interest rates, exchange rate volatility, and inflation, according to company officials. 

They said these factors made the investment less feasible in the current environment, dampening its confidence in the country's short-term economic prospects.

Consequently, 20 small contractors and suppliers have been left in limbo for months, unable to collect dues totalling Tk140 crore from Frontier Towers where Pinnacle BD Holdings has 63% stakes. Three local firms backed by Chowdhury Nafeez Sarafat, Adnan Imam, and Asif Choudhury own the remaining shares of the company.

Despite a regular income from its 934 tower operations, the company's revenue is being directed straight to banks to cover debt obligations, leaving little for the unpaid contractors.

In a desperate move, the contractors, under the banner of the Frontier Contractors Forum, have turned to the Bangladesh Telecommunication Regulatory Commission (BTRC), seeking intervention to recover their outstanding payments.

The situation raises questions about how a company supported by the world's second-largest private equity investor KKR, which had initially planned $300 million for long-term investment, ended up in such a predicament.

According to insiders, Pinnacle decided to hold off on injecting capital for now. With costs surpassing revenues, the firm – Frontier Towers' majority shareholder – has even floated the idea of offering the company's shares to contractors instead of cash payments.

"We are small contractors who built the towers for the company by taking bank loans. Frontier is receiving monthly payments by leasing those towers to Grameenphone. What will we do with shares of the company? We need to repay our bank loans and continue our own business," said Harun or Rashid, the owner of an affected company, HS Engineering.

At the end of September, during an online meeting a Frontier director nominated by Pinnacle, threatened to liquidate the company if their proposal of 39% shares against dues was not accepted, said the contractors.

Harun told TBS, "If we cannot repay the bank loans, we will be ruined with almost 2,000 of our employees. Their delay has burdened us with over Tk10 crore in interest expenses as our funds are stuck for seven months, which was scheduled to be paid in a month."

Pinnacle did not respond to TBS' requests for a comment.

Frontier Towers Bangladesh's CEO, Md Serajus Saleheen, recently told TBS, "The macroeconomic shocks – rising interest rates and the price of the dollar – hurt our cash flow, and we are trying to overcome the crisis. We are trying to pay our vendors as much as our cash flow allows. We are in talks with them and will soon have a plan based on our board's direction."

AB HighTech Consortium turns Frontier Towers

In 2018, BTRC awarded tower-sharing licences to four dedicated tower operators, stopping mobile operators from expanding their own tower networks.

Edotco, part of the Axiata Group, secured a tower-sharing licence with the highest score of 91. Summit and the now-named Kirtonkhola Tower obtained licences with scores of 88 and 85, respectively.

AB HighTech Consortium, securing a score of 82 got the fourth licence and there had been several clashes among groups to own the consortium.

In 2022 Pinnacle and its local partners acquired the company and its name was changed to Frontier Towers Bangladesh.

Pinnacle now owns 63% of Frontier's shares with newly issued shares. Two entities backed by Chowdhury Nafeez Sarafat – Aroosa Janashakti Limited, and Luminous Equity Management – hold 20% of the shares.

Dunhill Services, a company established by Genex Infosys and NRB Commercial Bank's expatriate entrepreneur Adnan Imam, holds 10% of the shares.

Integrated Services Limited, founded by the entrepreneurs of Banglalink's predecessor Sheba Telecom, holds 7% of Frontier's shares now.

Frontier's financial struggles

Several officials of the company said Frontier Towers has bank loans of over Tk200 crore from two private commercial banks. Out of some Tk5 crore monthly revenue, banks take more than Tk4 crore as loan instalments and the company still incurs over Tk1.5 crore losses after the costs for operations and maintenance alongside a regulatory cost of 7.38% of the revenue shared with the telecom regulator.

Claiming no involvement in the company's operations as a minority shareholder, Chowdhury Nafeez Sarafat told TBS that the financial crisis arose due to the halt of promised foreign investments.

Pinnacle had planned to establish a strong position in the tower business in Bangladesh, like its strong presence in the Philippines, with a long-term investment of $300 million, he said, adding that there was an expectation of having over 10% of the sum invested by now.

However, Pinnacle became cautious about investing in Bangladesh at the beginning of the year, and not even half of the anticipated short-term investments have arrived to date.

A Pinnacle official, speaking on anonymity, told TBS, "The investment is not feasible right now. Money is not our problem; it is about return on investment as the Country risk has increased here."

Harun or Rashid commented that Pinnacle should not have engaged the contractors to build the towers if they had decided to stop investments that withheld their payments. The work orders were issued at the end of 2023.

"We had no doubts about the financial capability of the KKR-controlled company. We didn't expect that after completing the work, they would say, 'This is not a feasible investment now.'"

Pinnacle's concerns 

The Pinnacle official from Singapore added that their analysts earlier this year had raised warnings about Bangladesh's political situation and macroeconomic indicators earlier this year.

One of the local investment analysts who had advised Pinnacle confirmed the claim.

The uneven competition in Bangladesh's tower-sharing industry also emerged as a concern for them.

"Restructuring liabilities is the only way to resolve the crisis right now," said the Pinnacle official.

A local executive at Frontier suggested solutions such as extending the loan repayment period from seven to 10 years, securing new equity and obtaining more bank loans to achieve a bigger scale which is considered a must for profitability.

According to him, having some 4,000 towers would be important for the company's scale for profitability. As tower sharing companies need to pay a fixed yearly licence renewal fee of Tk5 crore alongside Tk75 lakh value-added tax on the amount. Also, many fixed costs per unit would come down after scaling up.

Regulations let the mobile towers run for 15 years and the last six to seven years are usually more profitable after the loans are paid back. Without enough investments, the possibility might fade away.

After several meetings in the past two weeks, the telecommunications regulator is scheduled to meet with both parties again this week.

Tower industry scenario

According to the BTRC, there are 45,705 mobile towers in the country now. Having towercos in play, mobile operators have been selling portions of their network towers to towercos while towercos themselves are building new towers.

Of the mobile operators, Grameenphone owns over 12,500 towers, Banglalink has 4,005, Teletalk owns 3321, and Robi has 2,276 towers owned and operated by themselves. 

Of the towercos, Edotco owns 16,735, Summit Towers owns 4,624, Kirtonkhola owns 770 and Frontier Towers owns 934 towers right now. Also, state-owned BTCL has 514 towers.

Dedicated towercos can rent the network infrastructure to one or multiple mobile operators and earn fees.

The sector needs around 12,000 new towers in the next four years to cover the network demand, according to TowerXchange and Ronald Berger Report. 

"We need to get rid of the poor quality of voice calls and mobile internet," said Mohiuddin Ahmed, president of the Bangladesh Mobile Phone Consumers Association, adding that the BTRC under the new leadership should ensure quality services at affordable prices.