Credit Suisse estimates the rights issue requires “Singtel and the Mittals to contribute $1.4 billion and $1billion, respectively, given the high promoter ownership in Bharti Airtel” and added that it needs to be seen if “the relative shareholdings within these promoter groups undergo any change.” The Mittal family and Singtel collectively own a shade over 67% of Bharti Airtel.
The Swiss brokerage said the telco’s net debt to Ebitda or leverage ratio “will fall to 3.3x from current 4.4x level” if the rights issue is fully subscribed along with the (likely) sale of a further 35% stake in its tower arm, Bharti Infratel.
Airtel’s board approved plans on Thursday to raise Rs 32,000 crore through the rights issue and bond sales of Rs 7,000 crore, one of the largest fund-raising exercises by an Indian company. The objective is to cut debt and financing costs and boost cash flows to meet capex needs to engage meaningfully in the price war fomented by Mukesh Ambaniled Jio.
The Airtel stock fell 3.4% to Rs 307.05 at the close on the BSE on Friday. The rights issue was priced at Rs 220 a share, a discount of almost 31% to the closing price of Rs 317.95 on Thursday. Credit Suisse said the rights issue price “implies that the theoretical settling price for the stock should be Rs 297.”
Bank of America Merrill Lynch said the massive capital raising plan sends “a strong signal that Bharti Airtel can continue to sustain tariffs at current levels and try to gain market share, and that its promoters are fully backing the company and willing to invest more to compete.”
The US brokerage expects Airtel’s “debt rating to stabilise” after the fund raising. Moody’s Investors Service lowered Airtel’s senior unsecured rating to junk in February on worries about weak cash flows.
Brokerage CLSA said the additional capital will strengthen Airtel’s balance sheet.
