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Fresh fundraising to help Airtel boost balance sheet, create 5G war chest

Bharti Airtel has announced plans to raise Rs 21,000 crore via a rights issue

airtel rep reuters Representational image | Reuters

India’s second-largest telecom company Bharti Airtel has announced plans to raise Rs 21,000 crore via a rights issue and has received board approval for the same.

“The board of directors of the company comprehensively reviewed the industry scenario, business environment, financial/business strategy of the company and approved the company’s plan to raise further capital,” said the telecom operator.

The rights issue has been priced at Rs 535 a share and shareholders will be entitled to 1 equity share for every 14 shares they held. Bharti Airtel shares were up 1.3 per cent to Rs 601.85 in afternoon trading on Monday.

The promoter and promoter group of the company will collectively subscribe to the full extent of their aggregate rights entitlement. In addition, they will also subscribe to any unsubscribed shares in the issue. The promoters—Bharti Telecom and Singapore’s Singtel—hold 55.86 per cent stake in the company.

Airtel had earlier raised Rs 25,000 crore in its previous rights issue in 2019. Overall, its raised over $9 billion via equity and debt, stake sales in units and asset sales in the last few years.

While the company hasn’t disclosed the plans on how it aims to use the proceeds from the planned Rs 21,000 crore fundraising, as per the terms of payment of the issue price, only 25 per cent will be upfront with the balance over three years. This suggests that there may not be any immediate significant requirement.

For India’s incumbent telecom companies Bharti Airtel and Vodafone Idea, the going has been tough in recent years, given the intense price competition with Reliance Jio, the huge payments in adjusted gross revenue (AGR) dues and deferred spectrum payments that they need to pay the government. These are in addition to the recurring expenses and investments that the companies need to make to maintain and expand their network and infrastructure. On top of it, 5G is around the corner and companies will need to start planning for and earmark funds for 5G auctions.

On the AGR front alone, Airtel has dues of Rs 43,980 crore, while VIL has dues of Rs 58,000 crore, according to the government. Airtel has debt of around Rs 1.6 lakh crore.

In the last few months, the companies received a big setback from the Supreme Court after it said there would be no further recalculation of AGR. Although, both VIL and Airtel have filed review petitions, the apex court verdict has raised prospects that the sector would be heading towards a duopoly, given the troubles at Vodafone Idea. VIL is finding it tough to raise additional capital, and both Vodafone and the Aditya Birla Group have no plans to further invest in it.

In case, VIL were to fold up, there will be huge opportunities for Airtel and Jio, in terms of onboarding VIL’s subscribers, which stood around 273 million in June.

Bharti Airtel has over 352 million subscribers and Jio has around 441 million subscribers. The fundraising in the last three years has helped Airtel compete aggressively and gain market share in a hyper-competitive environment and has seen a steady rise in 4G subscriber growth.

With this another round of planned fundraising, Airtel is clearly bolstering its resources, so that it is ready for the upcoming opportunities.

“The proactive capital raise could be partly justified as it ensures Bharti Airtel is well funded for targeting any large-scale opportunity in the ongoing market consolidation, competing with deep-pocketed peer Jio and creating war chest for 5G technology upgrade,” said analysts at Motilal Oswal Financial Services.

Airtel could gain “disproportionately” from VIL’s significant subscriber share, offering incremental revenue of Rs 17,700 crore and EBITDA (earnings before interest, taxes, depreciation and amortisation) of Rs 8,900 crore, which is equivalent to a 20 per cent tariff hike, the analysts added.

Recent reports have also suggested that Google is also in talks to make substantial investments in Airtel, although neither company has officially commented on it. The tech giant already has investments in Jio, which is set to launch its ultra-affordable smartphone Jio Phone Next in partnership with Google later in September.

The Jio Phone Next could help Jio target entry-level and 2G subscribers away from Airtel and VIL.

Google’s potential investment in Airtel will strengthen the latter’s balance sheet. Google’s strong data analytics and data-monetisation capabilities could also aid Airtel.

India’s telecom and internet industry remains under-penetrated, despite strong growth in the last few years, and thus has huge growth potential. Airtel is keeping the fuel ready, so that it can step on the gas as and when the opportunities arise. 


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