Bharti brings block

An unusual block trade from India as Warburg Pincus divests stake in Bharti Televentures.

Warburg Pincus has raised $310 million from a second divestment in Bharti Televentures and out of what is fast becoming Asia's most active equity market. DSP Merrill Lynch and JM Morgan Stanley led the deal, which represented 3.2% of the Bharti's issued share capital and reduced Warburg Pincuses stake from 15.2% to 12.1%.

Block trades from India are fairly unusual thanks to the regulator's crossing requirements. However, this marks the private equity firm's second divestment. Last August it sold a 3.35% stake via Citigroup, which raised $202 million of which half is thought to have been placed with the Capital Group.

This time round about 41 investors placed orders totalling $450 million - prompting an increase in the base deal size from $250 million to $310 million. The deal was marketed on a discount of zero to 3% and priced at the wide end - 3% to the stock's Rs222.6 close on Tuesday.

Warburg Pincus is said to have opted for the wide end of the range because it wanted to keep the stock price stable, possibly in anticipation of a third divestment once its 30-day lock-up expires. In the run up to the deal, Bharti had also outperformed a soggy Indian market, rising 16% in the four days running up to the sale.

Analysts say this sudden spike was driven by good third quarter FY05 results and speculation that the government would finally lift the foreign ownership ceiling in the telecom sector. As such the group's timing appeared to be impeccable with the ownership limit lifted from 49% to 74% the day after the trade yesterday.

The deal has also been completed ahead of a pack of competing deals keen to get to market before the government's budget address at the end of February. Over the longer-term an earlier deal this year makes sense given the number of Indian cellular companies - Reliance Infocomm and Hutchison Max - seeking listings later this year.

Analaysts say the company's rarity value is one of the reasons why it has always commanded a strong premium. It is currently the only pure play on India's fast growing telecoms sector, which is expected to see subscribers grow from roughly 20 million in 2004 to well over 100 million by 2008. Analysts believe Bharti could capture a market share of up to 30%.

Cellular currently accounts for about 62% of group EBITDA and ARPUs continued to rise during the third quarter despite fierce tariff competition. Overall EBITDA rose 11% quarter-on-quarter to Rs7.8 billion.

Bharti is currently trading at roughly 30 times 2005 earnings but 17 to 20 times 2006 earnings thanks to its strong growth trajectory.

The new sale will expand the freefloat by about 8.4% and equals 16 days trading. Bharti currently has a market cap of about $9.5 billion and a 2.2% weighting on the Sensex.

Bankers say a large number of new funds decided to participate in the deal even though it is trading at a fairly rich valuation. Four of the top five funds that participated are said to be new. By geography, about 50% went to the US, 25% to Europe and the balance to Asia.

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