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Airtel’s global bond yields spike on concerns over telecom stress

The perpetual bonds are a quasiequity obligation without a fixed maturity and had a five and a half year non-call period, which means the debt cannot be repaid before this period.

, ET Bureau|
Nov 18, 2019, 08.21 AM IST
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Reuters
Airtel 2 - Reuters
The government is expected to announce some relief measures for telcos this week.
Global investors appear to have turned apprehensive about Bharti Airtel’s ability to repay debt amid growing concern over stress in the local telecom sector.

The company’s offshore perpetual bond yields surged more than 200 basis points, pulling down prices from their October 7 launch levels as the debt papers changed hands in the secondary market.

The bonds were sold with a coupon of 5.65% and now yield 7.73%, dealers said. Asset managers, insurance companies, pension funds and banks across Europe, Asia and the US picked up the bonds. US Treasury benchmark yields, a key global gauge, rose 10 basis points in the past one month.

The perpetual bonds are a quasiequity obligation without a fixed maturity and had a five and a half year non-call period, which means the debt cannot be repaid before this period. ET could not ascertain the buyers and sellers in the secondary market transactions.

“Our perpetual bonds were issued by our subsidiary in Mauritius and are currently trading at a yield of 7.38%, pricing in the market benchmarks as well as company-specific events including the AGR judgement by Honourable Supreme Court of India,” an Airtel spokesperson said.

In absolute terms, the bonds worth $100 are now available at $90-91, according to data from a banker.

Indian telcos Vodafone Idea and Bharti Airtel are battling a fund crunch after the Supreme Court ordered them to pay statutory dues based on a wider definition of adjusted gross revenue (AGR) that includes income from non-core activities. Some investors complained that the bonds were sold just about a fortnight before the SC delivered the verdict, said two senior bankers with direct knowledge of the matter.

“Had investors known about the imminent SC order, they would have either stayed away from the investment or demanded a higher yield,” one person said.

“All the bonds including the perpetual bonds have been issued basis all applicable global norms including those for disclosures post detailed due diligence by global lead manager banks,” the Airtel spokesperson said.

Airtel’s Global Yields Spike

Bharti Airtel raised $750 million through the subordinated perpetual security bonds issued by its wholly-owned subsidiary Network i2i Ltd. to reduce debt and strengthen its balance sheet amid eroding profitability and heightening competition. “Airtel used the money to repay all our debt,” said an executive from a local bank, which obtained full repayments.

ET first wrote about the fund raising plan on October 1.

Last week, Bharati Airtel again reached out to select investment bankers intending to raise a round of offshore funds via bonds. However, talks remain at a preliminary stage as the broader contours of the proposed fund raising exercise are far from final.

“It does not make sense for the company to go tapping overseas credit now as borrowing costs may jump amid the not-so-encouraging investor response,” said an investment banker who was earlier involved in the overseas bond sales. The company should wait as the government may come out with some dispensation, he said.

The government is expected to announce some relief measures for telcos this week.

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