Bharti back on the block

Warburg Pincus completes new divestment as lock-up expires.

Private equity firm Warburg Pincus raised $560 million from its third divestment of Bharti stock in the space of a year after Friday's close (March 11). UBS led the deal, which represents the largest ever block trade from India and the investment bank's first from the Sub Continent.

Warbug Pincus sold a 6% stake in the country's second largest wireless operator at a 2.6% discount to its Rs223.75 close on the National Stock Exchange, where trading is most active. As a result of the deal, which represents 49 days trading volume, it will be left with a 5.7% stake.

At the beginning of February, the group sold a 3.2% stake raising $310 million and last August, a 3.35% stake raising $202 million. After its most recent deal, it was subject to a 30-day lock-up and it will now be restricted from making any further divestments for 90 days.

Unlike the last deal, which was placed with 41 accounts, the new deal was far more closed and structured around reverse enquiry. No more than 10 investors are said to have participated and some specialists had heard there might have been no more than four.

At least one or two accounts are said to have been new to the stock. One group that has also long been known to want to increase its stake is strategic investor SingTel, which currently owns 10%. However, Bharti management have equally long been known to be resistant to the idea.

News of the deal had a positive impact on the group's share price, which rose 2.2% on Monday. This may have been partly driven by the removal of an overhang. So too, it may have been driven by the knowledge that investors who had been waiting for a new block in order to increase their positions, will now have to buy through the secondary market.

Bharti's freefloat has been expanded from 26% to 32%. Year-to-date the stock is up 5.98%, though it is down from a year-to-date high of Rs240.7 at the beginning of March. At the beginning of last week, the stock was still trading in the Rs230 area, but weakened over the following trading days after it became known that chairman Sunil Mittal had raised about $50 million selling shares.

It is currently trading around 7.1 times 2006 EV/EBITDA compared to a 4.9 times regional avearge for the wireless sector. However, whereas the overall sector has forecast EBITDA growth of 10% for 2006, analysts believe Bharti may achieve a much higher level of up to 28%.

At the end of 2004, the company had 9.8 million GSM subscribers, giving it a 20.7% market share in India's cellular sector. For the third quarter ended December 31, the company recorded 20.7% in net additions resulting in year-on-year EBITDA growth of 65% to $496 million.