As competition mounts, Singapore Telecommunications Ltd (Singtel) will buy roughly $525mn worth Bharti Airtel stock as part of its Indian telecom partner’s plan to raise $4.6bn through shares and bonds.
Sunil Mittal’s Airtel, fighting a low tariff war unleashed by rival telecom firm of billionaire Mukesh Ambani’s Reliance Jio, hopes to use the money to cut debt and strengthen its balance sheet at a time when the Indian telecom industry is trying to come to terms with a price war triggered by the entry of Reliance Jio Infocomm Ltd.
Under the fundraising plan, announced last month by the Sunil Mittal company, Airtel plans to sell new shares worth Rs250,000mn ($3.6bn) for Rs220 apiece, or a nearly 30% discount to its current stock price.
It will raise another Rs70,000mn via foreign-currency denominated bonds.
“With balance sheet strength being a concern among incumbents especially at a time when continued investments in 4G are paramount, this move should be a positive,” Citi analyst Saurabh Handa had said in a note on Airtel ‘s rights issue.
Airtel’s net debt stood at more than $15bn as of December 31, 2018, while its current market value is around $17.5bn.
Singtel had a net debt of $9.75bn ($7bn) at the time.
Singtel will buy 170mn new shares in Airtel, India’s No 2 telco in terms of subscribers.
This will dilute its effective interest in Airtel to 35.2% from 39.5%.
Singapore’s largest telecom operator has often said it holds a long-term view of its investment in Airtel, which it reiterated again yesterday. It owns just under 50% of Airtel’s holding company Bharti Telecom.
“Our participation in this rights offering... reflects our long-standing commitment to Airtel and the confidence in the future of the Indian market,” Arthur Lang, CEO of Singtel’s International Group, said yesterday.
Last month, Singtel reported a 14% drop in third-quarter net profit, hurt as Airtel’s earnings fell by three quarters in the December quarter. There is huge pricing pressure in the Indian telecom market and after the consolidation, there are now from 4 operators.
Reliance Jio backed by Parent Reliance Industries has been burning cash aggressively to gain market share.
After facing a huge drop in profits due to Jio Airtel, however, is pushing for offshore growth amid the price war and lacklustre performance at home.
Last month Airtel ‘s Africa unit, Airtel Networks Kenya Ltd, has agreed to merge with Telkom Kenya Ltd, the East African nation’s smallest telecom operator to create a stronger challenger to market leader Safaricom.
Airtel’s two other major shareholders – Bharti Group and Bharti Telecom – will subscribe to their full entitlement in the rights issue, while Singapore’s state-backed GIC will commit about Rs50,000mn, Airtel and Singtel said.
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