Bharti considering ‘debt push-down’ for Africa business
This, say people in the know, will help the telecom major to reduce currency fluctuation impact, which has been sending its cost of debt awry lately due to a volatile rupee.
Weighed down by huge cost of debt that is further aggravated by currency fluctuation, Bharti Airtel is considering ‘debt push-down’ for its African business, which will entail shifting part of its debt from parent company to its subsidiary to pare down translation-related impact.
This, say people in the know, will help the telecom major to reduce currency fluctuation impact, which has been sending its cost of debt awry lately due to a volatile rupee.
Bharti had raised a debt of $8.3 billion from a consortium of banks including State Bank of India (SBI) to fund the $10.7-billion acquisition of Zain’s Africa business last year.
“Bharti has huge floating debts that are foreign currency denominated and so any swing in the currency has a massive impact on the cost of debt. Of late, the direction in which the currency has been moving has impacted Bharti’s debt negatively. So, it would make sense for it (Bharti) to move debt for its African business to local levels,” said a source in the know on condition of anonymity.
He said since a large part of the telecom major’s debts is not hedged it takes a huge currency fluctuation hit. Though, he could not specify the extent of its impact on the company’s margins. Bharti’s earnings before interest, taxes, depreciation and amortisation (Ebitda) margin declined from 41% to 38% during the March quarter. But this was mainly due to drop in call rates on account of rising competition.
The telecom firm’s margin is among the lowest in Africa at 26.3% compared to other players like Millicom (39.6%), Safaricom (37.7%), Orange (35.7%), MTN (33.6%) and Vodacom (33.2%).
A Bharti spokesperson said the company was “evaluating different financing options” but was yet to firm up its plans on moving debt at local levels.
“We keep evaluating financing options available to us on a continuous basis, but at the moment we have not firmed up any plans (on shifting debt to local levels) and will announce if needed at appropriate time,” he said.
Goldman Sachs analysts Sachin Salgaonkar, Alexander Balakhnin, Piyush Mubayi and Paras Mehta in their report published early this week said the flip side of the move would be “relatively higher cost of debt.”