Indian industry shift helps Bharti Infratel block

Bharti Airtel sold another stake in its tower business on the back of the dynamic changes in India's telecommunications sector, raising $402 million despite muted ECM conditions.

India’s largest telecommunications company Bharti Airtel sold a small chunk of its stake in tower subsidiary Bharti Infratel late on Monday, raising Rp25.6 billion ($402 million) to help fund increased capital spending this year as it battles with increased competition at home.

New Delhi-headquartered Bharti Airtel sold 67.5 million shares, or 3.7% of Bharti Infratel’s existing share capital, through its investment vehicle Nettle Infrastructure Investments, leaving both with a combined 58% stake in the tower company. It is the second time this year that Bharti Airtel has divested a stake in its tower business, having sold a 10.3% stake to Canada Pension Plan Investment Board and private equity firm KKR in March.

Completing the overnight block trade was a challenge, bankers said, given the seasonal summer shutdown in Asian equity capital markets and the low levels of trading in Bharti Infratel’s shares relative to its $11.2 billion market capitalisation.

The share sale was, nonetheless, successfully pitched on the back of the company's solid business performance in the quarter to June-end, with tower rental revenue reaching a record of Rp22.6 billion. 

Bharti Infratel’s sub-par share price performance since the beginning of August also offered a good entry point for investors confident about the long-term outlook for the country's telecoms tower industry.

Big changes

India’s telecommunications industry has undergone dramatic shifts since last year. The mega merger between Vodafone India and Idea Cellular looks set to challenge Bharti Airtel’s position as the leading telecom services provider, while the entrance of Reliance Jio Infocomm into the 4G broadband market has sparked a price war between mobile carriers.

As a result, some investors believe the prospects for Bharti's tower business may be brighter than Bharti Airtel's, since Bharti Infratel can potentially gain from higher utilisation and rental rates. 

Indeed, senior managers at  Bharti Infratel expect the company to get a significant share of revenue from Reliance Jio Infocomm’s ambitious plan to deliver 4G broadband services to the entire Indian population over the next two years. 

Some equity analysts have pointed out that the Vodafone India-Idea Cellular merger may yet hurt Bharti Infratel because the duo will be able to share resources and will require less infrastructure support. Still, with the merger not expected to complete until 2018, any impact is unlikely to be seen until the 2019 financial year, analysts add.

All these factors helped Bharti Airtel to execute a relatively large deal by Indian standards that was eventually priced at Rp380 per share, slightly above the bottom end of the indicative Rp378 to Rp397.85 price band.

The final price represented a 4.5% discount to Bharti Infratel’s Monday close of Rp397.85. Bankers familiar with the deal said the trade got decent demand from both domestic and international investors, as well as from new and existing shareholders.

March's stake sale to Canada Pension Plan Investment Board and private equity firm KKR was struck at Rp325 per share and raised a further $952 million.

For Bharti Airtel, the proceeds of the share sale will help to fund its hefty projected capital expenditure of $3 billion in the current financial year. The telecom giant said it would spend $500 million in Africa to diversify away from the crowded domestic market.

JPMorgan and UBS were joint bookrunners of Bharti Infratel’s block trade.

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