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Fund-raising to boost Bharti Airtel's books: Analysts

Bharti Airtel’s application for permission to increase its foreign shareholding limit to 100 per cent is still pending with the government.

, ET Bureau|
Dec 06, 2019, 08.33 AM IST
Bharti Airtel’s plans to raise $2 billion (Rs 14,200 crore) via an equity issue as part of a larger $4 billion fund-raising move will strengthen its balance sheet ahead of the January-end deadline to pay its adjusted gross revenue (AGR) dues, but lead to an equity dilution of about 6 per cent for promoters, analysts said.

“Assuming $2 billion is treated as upfront equity, the fund-raise would, at current prices, equate to a dilution of ~6 per cent for now,” said a report by Citi Research.

It highlighted that while promoters are not permitted to participate in a qualified institutional placement of shares, they may still maintain their shareholding level through a private placement. The telco had raised Rs 25,000 crore earlier this year via a rights issue .

Bharti Airtel’s application for permission to increase its foreign shareholding limit to 100 per cent is still pending with the government. Singtel directly and indirectly through Bharti Telecom owns over 35 per cent in Bharti Airtel, while the Mittal family’s effective shareholding is at around 27 per cent.

The brokerage added the new infusion will strengthen balance sheet for future investments in network capacity and spectrum, and position the telco to capture market share from weaker incumbents. However, the report cautions that Airtel’s fund-raising “reflects the uncertainty on monetisation of its Infratel stake”.

Today, the company with 280 million subscribers has 55 per cent stake in Airtel Africa and 53.5 per cent stake in Bharti Infratel which are worth $2.2 billion and $3.4 billion, respectively, based on current market prices.

Bharti Airtel and Vodafone Idea’s stocks ended nearly 3 per cent and 6 per cent lower, at Rs 447.20 and Rs 7.31, respectively, on the BSE Thursday, on fears of continuing competitive intensity after Reliance Jio priced its new rates about 25 per cent lower than its rivals.

The AGR dues are a result of a Supreme Court verdict that forced both Airtel and Vodafone Idea to declare that without any relief they doubt their ability to continue as going concerns. Both the telcos are expected to pay at least Rs 89,000 crore to the government by January end.

“The above fund-raising is primarily to take care of the worst outcome, wherein the Supreme Court turns down this request, causing the entire adjusted gross revenue (AGR) dues of $4.2 billion for Airtel to become payable before January 24, 2020,” said brokerage firm Morgan Stanley in its report.

Brokerage firm Credit Suisse has chalked out the reduction in the telco’s leverage (net debt to earnings before interest, tax, depreciation and amortization, or Ebitda) from AGR verdict to its status after fund-raise.

“Bharti Airtel’s leverage (net debt to Ebitda) increased to 4.3x as of September 2019 (annualised Ebitda) post inclusion of AGR liabilities. However, with the expected market repair (from announced price hikes and potential price hikes in future), we expect leverage to come to 3.2x by FY21E and 2.7x by FY22E,” said Credit Suisse. It added that the $2 billion equity issuance is likely to help the leverage come down to 2.9x by FY21E and 2.4x by FY22E.

Airtel and Vodafone Idea had raised rates by up to 50 per cent effective December 3, while Jio’s new rates will be effective December 6.

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