Bharti Airtel’s dollar bond has been in limbo since the company completed a non-deal roadshow earlier this month. Barclays Capital, Deutsche Bank, HSBC, Standard Chartered Bank and UBS are mandated as bookrunners. BNP Paribas and Credit Agricole are joint leads.
According to one banker who had pitched for the deal, banks were asked to provide pricing levels and, at that time, Bharti Airtel had asked banks to commit to pricing a bond in the region of Treasuries plus 250bp. The company is expected to issue a 10-year bond.
This has led to widespread speculation that the deal is backstopped by the mandated leads. One banker on the deal denied that there was any backstop and noted that Bharti Airtel has completed a non-deal roadshow but “there is no deal”. Another banker on the deal declined to comment on a backstop, but noted that in the current market conditions, “the company would have to be flexible about pricing”.
Banks pitched aggressively for the deal and most of those that have been mandated, namely Barclays Capital, HSBC, Standard Chartered, BNP Paribas and Credit Agricole, were also involved in its acquisition financing. There was talk that Bharti’s lenders will be on the hook to extend a 10-year amortising loan when its bridge loan comes due if it does not issue the bond.
In the current market conditions, according to one investor, Bharti would definitely need to pay more than Treasuries plus 250bp. “I’m expecting about Treasuries plus 300bp or 400bp,” said one investor who attended the company’s roadshows. The company concluded a non-deal roadshow to Asia, Europe and the US in mid-June.
Bharti Airtel is a crossover credit rated BB+ by S&P and BBB- by Fitch. It is more than 30% owned by the Bharti Group, and Singapore Telecommunications owns a 32% stake. It is India’s biggest wireless operator, with a subscriber market share of 20.8%.
India’s operations account for more than 70% of Bharti’s subscriber base and revenues, but the company has been growing overseas and bought Zain Africa for $10.7 billion — largely funded by debt — last year.
Comparable bonds include the unrated PCCW 2016s, which were quoted at Treasuries plus 250bp. However, PCCW’s bonds are relatively illiquid. Another comp is Russian operator Vimpel Communications’ 2022s (rated BB+), which were quoted at Treasuries plus 467bp and a yield of 7.6% yesterday afternoon.
Market conditions have deteriorated during the past month amid renewed investor worries over a European sovereign debt default. The deal highlights the predicament banks face when they are asked to hard underwrite bond deals, leaving them exposed to market risk when conditions deteriorate.
According to one debt banker, Indian corporate borrowers routinely ask banks to backstop deals. “Backstops have entered pretty much every discussion we’ve had with an Indian corporate borrower,” said one banker. “The companies want certainty on raising funds, but it’s very hard for banks. You could end up losing a tonne of money if markets turn.”
Even if it does not issue a dollar bond, analysts expect that Bharti Airtel has the resources to cover its debt obligations — it has in excess of $3 billion of debt coming due during 2012.
“Bharti Airtel has adequate liquidity even if they do not issue a dollar bond. It has $2 billion of unused credit facilities, is expected to generate free cashflow of more than $1 billion each year and has strong relationships with the banks. SingTel also has a stake in Bharti which provides some added financial flexibility,” said Mehul Sukkawala, an analyst at Standard & Poor’s. “In addition, the company had planned to issue $2 billion worth of equity about a year ago, and it could revive that plan,” he added.