Bharti Airtel promoters bet Rs 11,700 cr in fight against Reliance Jio

Airtel's plan to raise funds to counter Reliance Jio has been backed by its promoters, largest shareholder Singtel and Singapore's sovereign wealth fund GIC.

On Thursday, GIC Pte Ltd announced the investment of Rs 5,000 crore in Airtel through a Rs 25,000 crore rights issue proposed by Airtel. Promoters including Bharti Group and Bharti Telecom will also take part in the rights issue. They will subscribe to shares worth Rs 11,785.7 crore.

Singapore Telecommunications Ltd (Singtel), in a separate statement, said it will invest Rs 3,750 crore, representing the rights entitlement for its direct stake of 15%.

Bharti Telecom will renounce its rights for shares worth Rs 5,000 crore in favour of GIC, Singtel said. Post rights issue subscription, Singtel's stake in Airtel will be 35.2% and the company will continue to be the single largest shareholder in country's second-largest telecom player.

The Board of Bharti Airtel had approved the rights issue to raise up to Rs 25,000 crore through the issuance of fully paid up shares at a price of Rs 220 per share and to raise an additional Rs 7,000 crore via the foreign currency perpetual bond issue.

In one of the biggest capital infusions, this will enable the company to ready itself against Mukesh Ambani-promoted Reliance Jio, which has disrupted the sector since its entry in late 2016, forcing consolidation in the telecom industry.

The capital raise provides the company with adequate financial muscle, amidst the current intense competitive environment in the Indian mobile market, UBS said in a research note.

"Depending on approvals, we expect the rights issue to be completed by Q1FY20... we expect 2019 to be the year of fight back as Bharti and Vodafone Idea strengthen balance-sheets, refarm spectrum to expand 4G footprint in tier-3, -4 cities and reduce the price gap with Jio. While this implies competition will remain intense, we expect to see modest sequential revenue recovery in the coming quarters due to the Arpu (average revenue per user) upgrade from 2G to 4G and the launch of min-Arpu plans," it said in a recent note.

Another note from Bank of America Merill Lynch said from a competition perspective, the fundraising is a strong signalling as it means Bharti can continue to sustain tariffs at current levels and maintain/try to gain market share, promoters are fully backing company and willing to invest more to compete. It also means debt rating would stabilise and eventually, Bharti would try to push the market towards a 2.5-player market.

Though, on Wednesday, S&P Global Ratings said Bharti Airtel's proposed rights issue of up to Rs 25,000 crore is not enough to stabilise its credit rating.

Airtel also said the promoter and promoter group reserve the right to subscribe either itself or through investors for additional shares in the issue, including in the event of under-subscription by public, in accordance with the applicable laws. The company is in the process of appointing banks to execute this.

"The rights issue reiterates the confidence of our shareholders in the competitive strength and sound business strategy of Airtel. It shall further strengthen our balance sheet with desired financial flexibility so as to meet future opportunities, particularly in the rapidly transforming Indian mobile market," Gopal Vittal, MD and CEO (India and South Asia), Bharti Airtel said in the statement.

The fresh capital infusion will help the company to continue investments in future rollouts to build large network capacity and create content and technology partnerships to ensure the best customer experience, he said.

Incumbents like Airtel and Vodafone Idea have been struggling to sustain themselves in the wake of severe competition. The shock waves are being felt even over two years after Jio's entry. In Q3 FY2019, Vodafone Idea posted a loss of about Rs 5,005 crore, while Airtel posted a 72% decline in profits and Reliance Communications knocked the doors of National Company Law Tribunal for insolvency, the second telecom firm to do so in recent times. However, Reliance Jio has managed to turn profitable in just two years of its operations.

India's largest telecom firm Vodafone Idea has also announced plans to raise Rs 18,000 crore through a rights issue.

HIGH-VALUE RECHARGE

Rs 32,000 cr – Bharti Airtel is set to raise, of which

Rs 25,000 cr – By way of rights issue

Rs 7,000 cr – Via foreign currency perpetual bond

Rs 5,000 cr – GIC will invest via rights issue

Rs 3,750 cr – Singtel will pump in, representing the rights entitlement for its direct stake of 15%

35.2% – Singtel’s stake in Airtel post rights issue subscription