India's telcos fight for cash

Bharti Airtel kicks off jumbo $3.5b rights issue

India’s leading telecom operator follows its rival to raise a huge pile of fresh capital in order to sustain a prolonged price war between the major telcos.

Bharti Airtel, India’s largest telecommunications firm by number of users, kicked off on Friday one of the country’s largest capital raises. It plans to raise Rp250 billion ($3.58 billion) from a rights issue to help it compete with aggressive rivals.

Through the Reg S deal, Bharti Airtel is looking to issue 1.13 billion rights shares on a 19-for-67 basis. The shares account for 28.3% of the firm’s existing share capital and 22% on a fully-diluted basis.

Exactly the same size as Vodafone Idea’s rights issue that was completed last week, Bharti Airtel’s cash call will set a record as the joint largest equity offering in local currency terms since the global financial crisis, overtaking the government’s Rp226 billion sale of a 10% stake in Coal India in 2015.

It is also set to be the third-largest in the country’s history behind ICICI Bank’s $4.7 billion equity raise in 2007 and State Bank of India’s $4.3 billion deal in 2008.

Existing Bharti Airtel shareholders, however, will only have to subscribe to $1.15 billion worth of rights shares, or roughly one-third of the total offering size.

That is because a group of existing and new investors have agreed to subscribe for about $2.35 billion worth of shares.

Singaporean state investment fund GIC, which does not currently hold any direct stake in Bharti Airtel, will invest $700 million into the company through the rights issue.

SingTel, Singapore’s largest telco and the largest shareholder of Bharti Airtel besides its parent, will fully take up its entitlement under its 15% direct stake and subscribe to about $525 million worth of shares. SingTel also holds an 24.5% indirect stake in Bharti Airtel through its parent Bharti Telecom.

Meanwhile, Bharti Telecom and Bharti Group will also take up their entitlement in full and subscribe to $1.125 billion worth of shares.

Bharti Airtel will issue the new shares at Rp220 each. This represents a 26% discount to the stock’s theoretical ex-rights price.

The equity raise is the larger part of a capital fundraising plan that includes a $1 billion foreign currency perpetual bond issue. Together they will add some $4.5 billion to Bharti Airtel’s coffer – more than seven times the firm’s $621 million cash balance as of the end of last year.

More importantly, it will help the telecommunications giant reduce its debt and free up part of its balance sheet for further investment in network expansion. At the end of last year, Bharti Airtel had $4.4 billion of short-term debt and its total debt-to-equity ratio was 145.5%.  

In a research note sent to its clients, ratings agency Moody’s said that the proposed rights issue is credit positive for Bharti Airtel because it will allow the company to reduce debt and improve its liquidity.

To some extent Bharti Airtel was forced to conduct the rights issue after its rival Vodafone Idea sealed its own $3.58 billion rights issue last week. Both companies need the fresh capital to sustain a price war between themselves and Reliance Jio Infocomm, the new telco that entered the Indian market two years ago.

Since starting its operations in September 2016, Reliance Jio has been offering free mobile and data plans in a move that has severely hit other telcos. Smaller players like MTS India, Uninor and Videocon have closed their doors, while bigger players like Vodafone India and Idea Cellular have had to merge to sustain their businesses.

Bharti Airtel said that the rights issue will help it continue investments in future rollouts to build a large network capacity and to create content and technology partnerships to ensure strong customer experience.

The rights issue will close on May 17 and the rights shares are scheulded to trade on June 4.

Joint lead managers of the rights issue are Axis Capital, JP Morgan, Goldman Sachs, HSBC and ICICI Securities.

¬ Haymarket Media Limited. All rights reserved.
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