Bharti Airtel gets board approval to raise up to Rs 32,000 crore
Airtel aims to create a war chest to contain debt and meet capex needs to fight Reliance Jio.
The record fundraising plan, unveiled after the board meeting on Thursday, comes as India’s second largest phone company seeks to reduce debt and financing costs, bolster cash flows and meet capital expenditure to fight the price war unleashed by Reliance Jio Infocomm.
The planned rights issue is aggressively priced at Rs 220 per share, or a discount of over 30% from the closing price of Rs 317.95 on BSE on Monday. The company will issue 1.14 billion shares, increasing its equity base by over 22% to 5.13 billion equity shares. The rights entitlement ratio has been pegged at 19 shares for every 67 held.
“The Bharti Airtel board has considered the recommendations of the special committee of directors, and thereby approved the fund raising of up to Rs 32,000 crore through a rights issuance of up to Rs 25,000 crore and perpetual bond with equity credit up to Rs 7,000 crore,” the company told the exchanges Thursday.
ET had reported the news on November 28.
The bulk of the proceeds from the share issue will be used to repay debt and lower borrowing costs. Bharti Airtel has net consolidated debt of Rs 1.15 lakh crore, of which the Indian operations’ borrowings amount to about Rs 80,000 crore. This includes outstanding spectrum payments of nearly Rs 46,000 crore. Bharti Airtel’s consolidated net debt to ebitda (earnings before interest, taxes, depreciation, and amortisation) is 4.2x.
“This is will be largest fund mobilisation decision in one go by any Indian corporate in India,” said a top executive at a foreign investment bank associated with the company.
The company is expected to file the draft red herring prospectus with the Securities and Exchange Board of India (Sebi) in the next two weeks and fund mobilisation will be completed by first quarter of 2019-20, a person familiar with the matter said.
This means that two major telecom companies–Bharti Airtel and market leader Vodafone Idea—plan to raise Rs 50,000 crore through right issues in the next three-four months, which could be one of the reasons for the aggressive pricing, said the banker. Vodafone Idea is looking to raise Rs25,000 crore through this route.
“Airtel's sizeable fundraise is aimed to fortify its balance sheet, boost liquidity levels, contain debt and give it a long-term access to funds that is critical to combat Jio and survive in a fiercely competitive industry,” said Naveen Kulkarni, telecoms analyst and research head at Reliance Securities. The discount “is clearly to make things attractive for the eligible shareholders to participate enthusiastically (but it) also partly reflects the continuing uncertainly in the telecom industry, with its accompanying, revenue share challenges.”
The Airtel board also “approved perpetual bonds of up to $1 billion (Rs 7,000 crore) denominated in foreign currency, subject to price, market conditions, and other terms and conditions as acceptable, and with conditions allowing the full accounting equity credit, and subject to all applicable laws, including under ECB (external commercial borrowing) regulations.”
The promoters of Bharti Airtel — Sunil Mittal and Singapore Telecommunications (Singtel), who together own a 67.14% stake — are likely to participate in the fundraising exercise, said the people cited above.
In its annual report for the fiscal year ended March 2018, Singtel had said it would continue to take a long-term strategic view of the India business landscape. In FY18, the Singapore company increased its stake in Bharti Telecom, which is Airtel’s key holding company. This stake hike by Singtel led to its effective interest in Bharti Airtel rising to 39.5% from 36.5% in the previous fiscal year, the annual report said.
In India, Airtel is engaged in a price war triggered by Jio that has seen the number of dominant telecom operators shrink to just three private players from more than a dozen in two years.
“While this is painful in the short term, we have arrived at a more sustainable market structure,” Singtel said in the annual report. “Given the right regulations and fair policies, this can be expected to deliver benefits as industry earnings normalise.”
Over the past two years or so, Airtel has been raising funds by progressively reducing its stake in its listed tower arm, Bharti Infratel. It has already raised well over Rs 12,000 crore through multiple stake dilutions. Last December, it decided to sell a further 32% stake in Bharti Infratel, valued at close to Rs 15,500 crore at the time, to build its 4G war chest. That sale however is likely after Bharti Infratel completes its merger with Indus Towers. Depending on market conditions, Bharti Airtel will dilute its stake in the tower business in the latter half of 2019, the people said.